Skip to main content

Full text of "The law of bank collections"

See other formats


KF 




QtnrnpU Slam ^rlynnl Sjibratg 



Cornell University Library 
KF 1024.S46 

The law of bank collections, 



3 1924 018 849 756 





The original of tiiis book is in 
tine Cornell University Library. 

There are no known copyright restrictions in 
the United States on the use of the text. 



http://www.archive.org/details/cu31924018849756 



THE LAW 



OF 



BANK COLLECTIONS 



BY 
ARTHUR W. SEL0VER, B. A., LL. M., 

Author of Treatise on the Negotiable 
Instruments Laws, etc. 



ST. PAUL, MINN. 

KEEFE-DAVIDSON LAW BOOK CO. 

1901. 



"6 7^7^7 



COPYKIGHT, 1901. 

BY 

AKTHUE W. SELOVER. 



"Webb Poblishing Co. Press, St. Paui.. 






1952 



PREFACE. 



It has been the aim of the author to make this work 
an accurate and exhaustive treatise on the law of bank 
collections, and with that end in view, he has endeavored 
to consult and incorporate all the decisions on this im- 
portant branch of banking law. It is believed that the 
importance of the subject justifies the labor required 
to follow out such a mode of treatment, and it is hoped 
that the result is a book which shall be of practical 
service to both lawyer and banker. 

The treatment which the subject of bank collections 
has received heretofore in general works on banks an<l 
banking is incomplete and inadequate in many resjjects. 
A great deal of the law on the subject is comparatively 
new, and necessitates, in some cases, a modification or 
a complete change of old rules and principles. 

Special care has been taken to determine and state 
the true relation between the collecting bank and its 
customer, for many of the difficulties encountered in 
this branch of the law are traceable to a misconcep- 
tion of the relation between the parties. 

Great care has also been taken to analyze and explain 
the conflicting decisions on the question of the liability 



of the collecting bank for the defaults of notaries and 
correspondent banks. To do this properly, it was neces- 
sary to set forth the gist of the decisions of the various 
jurisdictions seriatim, and to compare them somewhat 
at length. While there is little hope that the irrecon- 
cilable conflict on this point can be settled by anything 
short of a uniform statute covering the matter, the 
resume given will at least serve to show the strong and 
weak points of each side of the controversy. 

Another question which has received careful and en- 
larged treatment in this book is , that of the right to 
follow the proceeds of a collection as a trust fund. 
The modern rules of equity as administered in England 
and the United States have been applied in determining 
the existence of this right under varying circumstances. 

A separate chapter has been given to the considera- 
tion of the rights and liabilities growing out of the col- 
lection of forged or altered paper. 

Throughout the work, the author has endeavored to 
state the governing rules of law definitely and con- 
cisely. The rules given are based on the authorities 
cited thereto, and not on the ipse dixit of the author, 
though the author has not refrained from drawing from 
the decisions what he believes to be logically legitimate 
conclusions. For the benefit of bankers and lawyers 
who do not have access to large law libraries, many of 
the decisions have been fully analyzed in the text, and 
numerous pertinent quotations have been made from 
them. For the benefit of this class, also, the author 
has added to the citations from the official reports, 
parallel citations from other legal publications. 

With these observations, this work is respectfully sub- 
mitted to the public, in the hope that its demerits may 



be viewed with charity, and that its merits, if any, may 
be used to advantage. 

A. W. S. 
Minneapolis, Minnesota, May 10, 1901. 



TABLE OF CONTENTS. 



CHAPTER I. 

THE RELATION AND ITS INCIDENTS. 

(A) In General. 

Pag-e. 

§ 1. Introductory statement 2 

2. Collecting bank as bailee 3 

3. Collecting bank as agent 6 

4. Collecting bank as trustee 8 

5. Relation when paper is payable at bank 9 

6. What law governs relation 11 

7. Consideration for undertaking to collect 13 

8. Inception of relation in general 15 

9. Estoppel of bank 16 

10. Effect of custom and usage 17 

(B) Title to Paper and Special Property Rights of Banks. 

§ 11. As a general rule, title remains in depositor 19 

12. Title does not pass to bank insolvent when paper was 

received 21 

13. Title to paper received and treated as cash passes to 

the bank 21 

14. Presumptions 23 

15. Effect of credit in advance of collection — Cancellation of 

credit on dishonor of paper 25 

16. Credit of checks drawn on collecting bank 28 

17. Title as affected by form of indorsement 29 

18. ■ Blank indorsement passes title 32 

19. ■ Parol evidence 34 

20. Bank discounting paper has title 35 

21. When title of bank revests in depositor 37 

22. Special interest of bank as bailee 37 

23. Lien of bank and right to set-off 39 



; TABLE OF CONTENTS. 

CHAPTER II. 

AUTHORITY OF COLLECTING BANK IN GENERAL. 

Page. 

24. Bank has implied power to make collections 44 

25. National bank 45 

26. General scope and limitations 46 

27. Special Instructions as to mode of collection 47 

28. Authority of bank to sue in its own name 48 

29. For possession of paper 51 

30. As real party in interest 52 

31. Termination of authority to collect 53 

32. • Insolvency of bank 54 

33. Revocation of authority by owner of paper 54 

34. Renunciation by bank 55 



CHAPTER III. 

DUTIES AND LIABILITIES OF COLLECTING BANK IN 
GENERAL. 

35. Degree of care required of bank 59 

36. Contractual limitation of liability 60 

37. Representation of bank by cashier 62 

38. Defaults of depositor — Bank not liable 63 

39. Liability for loss of paper — Negligence presumed from loss 64 

40. Failure to make inquiry and give notice within rea- 
sonable time 66 

41. Surrender of bills of lading accompanying drafts for price 

of goods 67 

42. Application of deposits to payment of depositor's paper 

held for collection 71 

43. Check or draft not an assignment of fund 76 

44. Time and manner of receiving payment 78 

45. Extensions and renewals 79 

46. Medium of payment — As general rule, bank can take 

money only 80 

47. Checks on other banks 82 

48. Claims against collecting bank — Certificates of de- 
posit 85' 

49. Same — Checks on collecting bank '. .. 86 

50. Collecting bank also a creditor of obligor — Cannot ob- 

tain preference — Exceptions 86 



TABLE OF CONTENTS. xi 

Paga. 

51. Collection of interest 90 

52. Liability of collecting bank for depreciation 91 

53. Liability of collecting banlc as general indorser 92 

54. Duties as to paper sent to a correspondent — Forwarding 

instructions and information 94 

55. Fraud and mistake 95 

56. Negligence a question of fact — Province of court and 

jury 95 

57. Waiver of negligence of collecting bank 97 



CHAPTER VI. 

TAKING STEPS NECESSARY TO CHARGE PARTIES TO PAPER. 

§ 58. General rules 101 

59. Bank is a "holder" for purposes of collection 102 

60. Presentment for acceptance 103 

61. Excuses for failure to present for acceptance 105 

62. Bank liable for taking acceptance not according to 

tenor of bill 106 

63. Presentment for payment 107 

64. Time of maturity and days of grace 108 

65. Paper payable at bank Ill 

66. Checks 112 

67. Effect, of custom 114 

68. Protest 115 

69. Excuses and defenses 116 

70. Notice of dishonor 117 

71. What indorsers entitled to notice from bank 120 

72. Owner may sue bank without first suing indorser 121 

73. Enforcement of paper taken in payment 122 

74. Return of dishonored paper 123 

75.' Effect of custom 125 

76. Ratification and waiver of negligence of bank 126 



CHAPTER V. 



EMPLOYMENT OF AGENTS AND CORRESPONDENTS, AND 
LIABILITY FOR THEIR DEFAULTS. 

(A) In General. 
§ 77. Bank must use reasonable care in selection of agents and 

correspondents 132 



xii TABLE OF CONTENTS. 

Pa^e. 

§ 78. Drawee or obligor not a suitable agent or correspondent. . 133 

79. Effect of custom 138 

80. Contracts and dealings between banks in general 140 

81. Employment of notaries, and liability for their acts and 

defaults 141 

82. Notary an officer or employe of bank 143 

83. Notary a public officer ^ 144 

84. Employment of agents other than notaries and banks 

and liability for their defaults 146 

(B) Liability of Initial Bank for Default of Corres- 
pondent. 

§ 85. In general 148 

86. England 149 

87. Federal courts of the United States 149 

88. New York 151 

89. New Jersey 153 

90. Ohio 153 

91. Georgia 154 

92. Michigan 154 

93. Minnesota ; 156 

94. Montana 157 

95. North Dakota 157 

96. South Dakota 158 

97. Colorado 159 

98. Texas 159 

99. Massachusetts 160 

100. Connecticut 161 

101. Pennsylvania 162 

102. Maryland 164 

103. North Carolina 164 

104. Indiana 165 

105. Illinois 166 

106. Wisconsin 167 

107. Iowa 167 

108. Kansas : 168 

109. Nebraska 169 

110. Missouri 170 

111. Kentucky 170 

112. Tennessee 171 

113. Alabama 172 

114. Mississippi 173 



TABLE OF CONTENTS. xiii 

Page. 

115. Louisiana 173 

116. Conclusions from the decisions 174 

117. Effect of special agreements 177 

118. Effect of custom 177 

119. Effect of insolvency of correspondent 178 

120. Liability of correspondent bank to initial bank 179 



CHAPTEE VI. 

COMPLETION OP COLLECTION AND REMITTANCE OP 
PROCEEDS. 

121. Collection complete on receipt of money and entry of 

absolute credit — Change of bank's status from bailee 
to debtor 182 

122. Collection not complete on mere credit in advance of 

collection 184 

123. Exceptions from estoppel or particular course of 

dealing 186 

124. Completion of collection by application of deposits to 

payment — ^Effect of failure to so apply deposits 189 

125. Withdrawal of deposits 190 

126. Effect of payment to correspondent bank 191 

127. How remittance made — Check, draft, or certificate of 

collecting bank 191 

128. Payment by mistake, and recovery of payments made 

by mistake 192 

129. Mistake as to solvency of obligor, or sufficiency of 

customer's deposits 194 

130. Voluntary payment by bank cannot he recovered back. . 197 



CHAPTER VII. 

RIGHTS AND LIABILITIES AS TO PROCEEDS. 

(A) In Generai.. 

131. Who entitled to proceeds in general 200 

132. Bona fide holders of paper 203 

133. Rights of creditors of owner 204 

134. Proceeds of paper belonging to firm or partner 206 



xiv TABLE OF CONTENTS. 

Page. 
§ 135. Proceeds of judgment on joint claims of bank and 

depositor 207 

136. Liability of correspondent bank to owner 207 

137. For conversion 208 

138. Liability of correspondent to initial bank 209 

139. Title and rights as between initial and correspondent 

banks in general 210 

140. Estoppel of initial bank to deny ownership 211 

141. Effect of rules and usages of clearing houses 212 

142. Lien of correspondent bank on proceeds for debt of 

initial bank 213 

143. When correspondent a bona fide purchaser of paper 216 

144. Notice of real ownership of paper 219 

145. Proceeds of paper originally indorsed in blank 223 

(B) Enforcing Preference or Establishing Trust. 

§ 146. In general 225 

147. Fraudulent conversion as creating preference or trust. . 227 

148. Remittance made by draft or check — Drawer or drawee 

bank insolvent 229 

149. Refusal to pay customer's check does not give prefer- 

ence 231 

150. Tracing and following proceeds into insolvent estate of 

collecting bank .' 232 

151. Proceeds never in possession of bank 237 

152. Amount of note against customer charged to his 

account before insolvency of bank 239 

153. — — Proceeds disposed of before insolvency 239 

154. Proceeds collected by assignee or receiver 241 

155. Bank as owner of paper and proceeds 243 

156. Preference limited to assets realized at time of failure 

of bank 245 

157. Waiver of preference or trust 245 



CHAPTER VIII. 

COLLECTION OF FORGED OR ALTERED PAPER. 

158. What law governs liability of collecting bank 248 

159. Name of maker or drawer forged 250 

160. Estoppel of bank by acts of cashier 253 



TABLE OP CONTENTS. XV 

Page. 

161. Drawee bank not charged with knowledge of alterations 254 

162. Indorsement of payee forged 254 

163. Diligence in notifying parties to paper 258 

164. Liability of collecting bank on its Indorsement of forged 

paper 260 

165. Charging back amount of forged or altered paper 262 

166. Recovery back of payments made on forged or altered 

paper 264 

167. Bank's agency undisclosed 269 

168. Effect of certification of paper by drawee bank 271 

169. Ratification and waiver 271 



CHAPTER IX. 

ACTIONS AGAINST BANK FOR NEGLIGENCE. 

§ 170. Right of action in general 274 

171. Surrender of paper as condition precedent to action. . . 276 

172. Limitation of action 277 

173. Declaration or complaint 278 

174. Answer 280 

175. Presumptions and burden of proof 281 

176. Admissibility of evidence 283 

177. Pleading and proof — Variance 284 

178. Matters admissible under general denial 285 

179. Verdict and judgment 286 



CHAPTER X. 

MEASURE OF DAMAGES. 

180. Compensatory damages in general 288 

181. Nominal damages 289 

182. Face value of paper 290 

183. For failure to charge indorsers 292 

184. Costs of unsuccessful suits against indorsers 293 

185. For conversion 294 

186. Recovery of interest 294 

187. Matters that may be shown in mitigation of damages. . 295 



LAW OF BANK COLLECTIONS, 



CHAPTER I. 

THE RELATION AND' ITS INCIDENTS. 

(A) In General. 

§ 1. Introductory statement. 

2. Collecting bank as bailee. 

3. Collecting bank as agent./ 

4. Collecting bank as trustee. 

5. Relation when paper is payable at bank. 

6. What law governs relation. 

7. Consideration for undertaking to collect. 

8. Inception of relation in general. 

9. Estoppel of bank. 

10. Effect of custom and usage. 

(B) Title to Paper, and Special Property Rights of Bank. 

§ 11. As a general rule, title remains in depositor. 

12. Title does not pass to bank' insolvent when paper was re- 

ceived. 

13. Title to paper received and treated as cash passes to bank. 

14. , Presumptions. 

15. Effect of credit in advance of collection — Cancellation of 

credit on dishonor of paper. 

16. Credit of checks drawn on collecting bank. 

17. Title as affected by form of indorsement. 

18. Blank indorsement passes title. 

19. Parol evidence. 

20. Bank discounting paper has title. 

21. When title of bank revests in depositor. 

22. Special interest of bank as bailee. 

23. Lien of bank and right to set-ofC. 

(1) 



§ 1 BANK COLLEX:!TIONS. [Ch. 1 

(A) In General. 

The relation between a depositor of commercial paper for. 
collection and the collecting bank is that of bailor and bailee; 
but some courts treat it as that of principal and agent. Though 
fiduciary in its nature, the relation is not a trust; yet a trust 
may, under certain circumstances, grow out of the relation, 
and attach to the proceeds of the collection. 

Where the paper is payable at the collecting bank, the lat- 
ter can act for the payee or holder only; the place of pay- 
ment being designated merely for convenience. 

The law of the place of the performance of the contract 
governs the relation between the collecting bank and its cus- 
tomer. 

The general profits of the business of handling the paper, 
and the advantage from the rates of exchange, form a suffi- 
cient consideration for the undertaking of the bank to col- 
lect. If the bank accepts the paper for collection, and takes 
steps to that end, it is bound to perform the undertaking. 

The relation takes its inception from the delivery and ac- 
ceptance of the paper for collection, and the bank may, by 
its acts, become estopped to deny the relation. 

All general, reasonable, and lawful customs of banks enter 
into the relation. 

§ 1. Introductory statement. 

In defining the exact relation existing between one 
who delivers commercial paper to a bank for collec- 
tion and the bank which accepts the paper for that pur- 
pose, we at once encounter the great difficulty of dis- 
tinguishing between a "bailment," an "agency," and a 
"trust." 

While it is true that these terms stand for relations 
having some common characteristics, such as the ex- 
istence in all of a more or less clearly defi.ned fiduciary 
(2) 



Ch. 1] RELATION AND ITS INCIDENTS. § 2 

element, and it is also true that the result reached in 
deciding similar cases on different theories is often the 
same, nevertheless it is to be regretted that so many 
courts of last resort have adopted different theories 
of the relation between the collecting bank and its cus- 
tomer, and that so many courts use the above terms 
loosely and interchangeably.' The actual result of this 
confusion of terms, as we shall see later, has been a 
serious and irreconcilable conflict of authority on some 
branches of the law relating to collections hj banks. 
It is fitting, therefore, that proper attention be given 
at the outset to determining the true relation between 
the parties to the contract for collection. 

§ 2. Collecting bank as bailee. 

Mr. Edwards, in his work on Bailments, treats a de- 
livery and acceptance of negotiable paper for collection 
as creating a contract of mandate,^ Avhich he defines as 
a "bailment of goods without reward, to be carried from 
place to place, or to have some act performed about 
them."'^ This position would be correct were it not for 
the fact that tlip courts do not regard the undertaking 
of a bank to collect commercial paper as gratuitous.* 

In Louisiana, the delivery of paper to a bank for col- 
lection is designated as a bailment, technically known 
as an "irregular deposit."^ This is according to Poth- 

1 The opinion in Foster v. Rincker, 4 Wyo. 484, 35 Pac. 470, is a 
good illustration of the confusing use of these terms. 

2 Edwards, Bailments (2d Ed.) § 91. 

3 Edwards, Bailments (2d Ed.) § 74. 
* See post, § 7. 

:; Amelungs' Syndics v. Bank of United States (La.) 1 Mart. (O. 
S.) 322, 348. 

(3) 



^ 2 BANK COLLECTIONS. [Ch.' 1 

ier's (civil law) classification of bailments for hire 
into regular and irregular, and his definition of the lat- 
ter class as bailments where the specific thing bailed is 
not to be returned, but a thing of similar nature and 
equal value.® The difficulty with this classification 
is that title passes to the bailee under an irregular de- 
posit,'^ whereas it is universally held that title does not 
pass to the bank under the ordinary contract for col- 
lection,* at least until collection is made and absolute 
credit given." 

Inasmuch, therefore, as the courts do not consider 
the bailment of paper to a bank for collection as gratu- 
itous, or as passing title to the bailee, the contract falls 
more properly under that division of bailments desig- 
nated as locatio operis faciendi, or the hire of work 
and labor, or care and services, to be bestowed on the 
property bailed for a reward.^** 

This view of the nature of the bailment of paper for 
collection is sustained by the United States , court of 
appeals for the district of Massachusetts in the case 
of Beal V. City of Somerville,^^ where Putnam, C. 
J., says: "A mere deposit would only require a bank 
to keep; but a usage i-equiring the bank to do in this 
case something more has continued so long, and is so 
notorious and universal, that the law can take judicial 

Pothier, de Depot, § 82. 

7 Jones, Bailments, § 102; Story, Bailments, § 370a; Pothier, de 
Depot, § 82. 
s See post, § 11. 
See post, § 121 et seq. 

10 Story, Bailments Oth Ed.) § 370; Coggs v. Bernard, 2 Ld. Raym. 
909, 913. 

11 5 U. S. App. 14, 50 Fed. 649. 
(4) 



Ch. 1] RELATION AND ITS INCIDENTS. § 2 

notice of it, and it happens that its terms and limita- 
tions cannot be mistaken. Tlie bank must use due dili- 
gence to collect; and, as collections are completed, the 
bank no longer holds the avails as bailee, but is author- 
ized to mingle them with its other funds, and thus con- 
stitute itself a debtor. This, of course, makes the en- 
tire transaction something more than a mere 'deposit,' 
in any proper sense; but the word well gives color to 
all that follows, and converts all that is done between 
the customer and the bank, to and including the actual 
turning of the checks into money, into locatio operis, 
according to its meaning as explained by Judge Story 
in his work on Bailments (chapter 6, art. 2). Aside 
from the right of the bank to constitute itself a debtor 
from the time the checks are converted into cash, or its 
equivalent, * * * no qualification of the strict 
legal relations created by a bailment is deducible from 
the general nature of the transaction, the terms in which 
it is expressed, or the settled custom, or is shown by the 
appellant." 

Many of the courts, however, do not take the pains 
to determine the particular kind of bailment that arises 
from the relation, but content themselves with the 
simple designation of "bailment." ^^ 

Thus, in Central Georgia Bank v. Cleveland Nat. 
Bank, the supreme court of Georgia states: "A bill 

12 Foster v. Rincker, 4 Wyo. 484, 35 Pac. 470; Young v. Noble's 
Ex'rs, 2 Disn. (Ohio) 487; Yerkes v. National Bank of Port Jervis, 
69 N. Y., 382, 386; Central Georgia Bank v. Cleveland Nat. Bank, 59 
Ga. 667; First Nat. Bank of Birmingham v. First Nat. Bank of New- 
port, 116 Ala. 520, 22 So. 976. 

A deposit of paper with an express company for collection is a 
bailment. American Express Co. v. Parsons, 44 111. 312. 

(5) 



8 3 BANK COLLECTIONS. [Ch. 1 

is sent forward, iu resjiect to Avliich certain services, 
appropriate to the business of a bank, are to be ren- 
dered. This is a bailment. In contemplation of law, 
the bailor agrees to pay for the services, reasonable 
compensation. The bailee receives the bill and retains 
it, in the usual course of business, giving no notice that 
the bailment is declined, or the instructions will not 
be complied with. In contemplation of law, there is 
an undertaking to comply." ^^ 

Ini view of the above authorities, and of the facts 
that, like any other bailee for hire, a bank holding 
paper for collection is entitled to possession of it for the 
purposes of collection,^* is charged with ordinary care 
or diligence iu making the collection,^^ and must ac- 
count for the paper or its proceeds when the collection 
is completed;^" and of the further fact that the bail- 
ment theory is the only one that will meet and solve 
satisfactorily all the difficulties arising out of the em- 
ployment of agents and correspondent banks, regarding 
which there is such a lamentable conflict of authority,^ ^ 
— there ought to be no hesitation about adopting it as 
the true theory of the relation between the initial col- 
lecting liank and its customer. 

§ 3. Collecting bank as agent. 

It is doubtless due to the fact that the rules and doc- 
trines of agency can be applied readily to a part of the 

13 59 Ga. 667. 

14 See post, § 22. 

15 See post, § 35. 

16 See post, §§ ii, 131. 
IT See post, §§ 85-120. 

(6) 



Ch. 1] RELATION AND ITS INCIDENTS. § 3 

process of collection, viz., the receipt of the money, that 
so many courts use the term "agency" to designate and 
characterize the relation of the parties during the whole 
process. No particular harm is done by the use of this 
terminology beyond the confusion of terms alluded to 
above, until it comes to the discussion of the rights, 
duties, and liabilities arising from the employment by 
the initial collecting bank of agents and correspond- 
ents. Then the agency theory requires an elaboration, 
unnecessary under the bailment theory, of the trouble- 
some doctrine of delegation of powers ; for the idea of 
derivative jjower is of the essence of the relation of 
principal and agent. 

In deference, however, to the very respectable line 
of authorities which treats the relation between the 
collecting bank and its customer broadly as an agency,^® 
we shall be compelled to use that term in dealing with 
those authorities; but elsewhere we shall endeavor to 
use the term onlj' Avithin the limited scope given it in 
the first paragraph of this section. 

There is another limitation of the so-called agency of 
the collecting bank. It is the agent of the payee or 
person depositing the paper for collection, to receive 
payment, but is not the agent of the maker or payer.^" 

IS Bank of Mobile v. Huggins, 3 Ala. 206; Prescott v. Leonard, 32 
Kan. 142; Jones v. Kilbreth, 49 Ohio St. 401, 31 N. E. 346; Alley v. 
Rogers, 19 Grat. (Va.) 366; Smith v. Essex County Bank, 22 Barb. 
(N. Y.) 627; Scott v. Ocean Bank, 23 N. Y. 289; People v. Bank of 
Dansville, 39 Hun, 187; Freeman's Nat. Bank v. National Tube- 
Works Co., 151 Mass. 413, 24 N. E. 779, 21 Am. St. Rep. 461, 8 L. 
R. A. 42. 

10 Smith V. Essex County Bank, 22 Barb. (N. Y.) 627, and cases 
cited. Relation where paper is payable at collecting bank, see 

(7) 



§ 4 BANK COLLECTIONS. [Ch. 1 

The obligor, however, by depositing money with the 
bank holding a bill against him for collection, with in- 
structions to apply it to payment of the bill, makes the 
bank his agent for its payment;^" but, as we shall see 
later, the obligor cannot, by such a deposit in case of 
paper payable at a bank, make the bank the agent of 
the payee or holder, if the paper is not actually in the 
bank.^^ 

§ 4. Collecting bank as trustee. 

A trust, teclini tally speaking, can be administered, 
and the rights and remedies of the trustee and the 
cestui que trust determined, only in a court of equity.^^ 
This feature differentiates the trust proper from other 
confidential relations, which, though popularly and 
loosely designated as "trusts," come under the jurisdic- 
tion of the courts of common law.^^ Applying this test, 
the relation between a collecting bank and its customer, 
at its inception, at least, is not a trust. Nor does any 
known authority hold directly that the relation is a 
trust; though some authorities come dangerously near 
such a holding, indirectly, in determining the right of 
the owner to follow the proceeds as a trust fund.^* In 
this connection we shall see later that the equitable doc- 
post, § 5. Authority to receive payment for payee after dishonor, 
see post, § 44. 

20 Moore v. Meyer, 57 Ala. 20. 

21 See post, § 5. 

22 1 Perry, Trusts (5th Ed.) § 17, and cases cited. 

23 See 1 Perry, Trusts (5th Ed.) § 1. 

24 See post, §§ 150-153. 

(S) 



Ch. 1] RELATION AND ITS INCIDENTS. § 5 

trines as to following trust funds are applied, under cer- 
tain circumstances, to enable the owner to recover the 
proceeds of the collection.^^ 

§ 5. Relation when paper is payable at bank. 

Where an instrument is made payable at a bank, and 
is left there for collection, the bank is entitled to re- 
ceive payment as the agent of the payee or holder.^^ 
But, if the instrument, though payable at the bank, is 
not left there for collection, payment to the bank does 
not satisfy it ; since the bank, in receiving the money 
in such case, acts only as the agent of the payor.^'^ 

On this point, in Adams v. Improvement Commis- 
sion,^* which is referred to in Bank of Montreal v. Inger- 
son^" as an unusually well-considered case, the court 
says : "If maturing paper be left with the banker for 

2^ See post, §§ 146-157. 

26 Smith V. Essex County Bank, 22 Barb. (N. Y.) 627; Ward v. 
Smith, 7 Wall. (U. S.) 447. See, also, cases cited in next note. 

27 First Nat. Bank of Omaha v. Chilson, 45 Neb. 257; Bank of 
Montreal v. Ingerson, 105 Iowa, 349, 75 N. W. 351 (overruling Lazier 
V. Horan, 55 Iowa, 75, 7 N. W. 457) ; Caldwell v. Evans, 5 Bush (Ky.) 
380; Adams v. Hackensack Improvement Commission, 44 N. J. Law, 
638, and cases cited; St. Paul Nat. Bank v. Cannon, 46 Minn. 95, 48 
N. W. 526; Hills v. Place, 48 N. Y. 520; Cheney v. Libby, 134 U. S. 
68, 10 Sup. Ct. 498; Ward v. Smith, 7 Wall. (U. S.) 447; Williams- 
port Gas Co. V. Pinkerton, 95 Pa. St. 62 ; Wood v. Merchants' Saving, 
Loan & Trust Co., 41 111. 267; Grissom v. Commercial Nat. Bank, 87 
Tenn. 350, 10 S. W. 774; Moore v. Meyer, 57 Ala. 20; Pease v. War- 
ren, 29 Mich. 9. 

The same rule applies to paper payable at the office of some named 
person. Englert v. White, 92 Iowa, 97, 60 N. W. 224; Kllndt v. Hig- 
gins, 95 Iowa, 529, 64 N. W. 414; Keene Five-Cents Sav. Bank v. 
Archer, 109 Iowa, 419, 80 N. W. 505. 

28 44 N. J. Law, 638. 

29 105 Iowa, 349, 75 N. W. 351. 

(9) 



8 5 BANK COLLECTIONS. [Ch. 1 

collection, he becomes the agent of the holder to re- 
ceive payment; but unless the banker is made the 
holder's agent by a deposit of the paper with him for 
collection, he has no authority to act for the holder. 
The naming of a bank in a promissory note as the place 
of payment does not make the banking association an 
agent for the collection of the note or the receipt of 
the money. No power, authority, or duty is thereby 
conferred upon the banker in reference to the note, and 
the debtor cannot make the banker the agent of the 
holder by simply depositing with him the funds to pay 
it with." 

The naming of the bank is, in such case, a mere 
designation of the place where the note is to be paid, 
not of the person to whom it is to be paid.^" 

So, a provision in a bond making it payable at a par- 
ticular bank merely imports a stipulation that the hold- 
ers will produce it at the bank when due, to receive 
payment, and that the obligors will then and there 
produce the funds for payment.^^ 

Nevertheless, if an instrument is made payable at a 
bank, but is not lodged there at the time for payment, 
but the obligor is there at that time with funds to pay 
it, he "so far satisfies the contract that he cannot be 
made responsible for any future damages, either as 
costs of suit or interest, for delay." *^ If, however, 
there are no funds of the maker in the bank at the ma- 

30 Wood V. Merchants' Saving, Loan & Trust Co., 41 111. 267; Cald- 
well V. Evans, 5 Bush (Ky.) 380. See, also, Ridgely Nat. Bank v. 
Patton, 109 111. 479, and cases cited in note 27, supra. 

31 Ward V. Smith, 7 Wall. (U. S.) 447, 450. 

32 Ward V. Smith, 7 Wall. (U. S.) 447. 

(10) 



Ch. 1] RELATION AND ITS INCIDENTS. § 6 

tuvity of the note, it cannot be seriously contended tliat 
tlie banlc has implied autliority to pay it.^^ 

The rules above announced apply to a bank on which 
a check is draAvn, making it the agent of the sender on 
receiving the check for collection.^* The authority of 
a bank at Avbich an instrument is payable, to apply the 
deposits of the obligor to payment thereof, is a question 
akin to those discussed in this section, but will be fully 
considered later. ^^ 

§ 6. What law governs relation. 

It is generally conceded that the law of the place 
of performance of the contract for collection governs 
it.^'s 

So, where a draft drawn on a resident of North 
Carolina came into the possession of an Illinois bank, 
which sent it to a North Carolina bank for collection, 
and the latter, after accepting the collection by letter, 
transmitted the paper to another bank in North Caro- 
lina, and the last-named bank failed after making the 
collection, the contract of collection was a North Caro- 
lina contract, and governed by the laws of that state.^^ 

33 Merchants' & Planters' Bank v. Meyer, 56 Ark. 499, 510; Coates 
V. Preston, 105 III. 470. 

■a Exchange Bank of Wheeling v. Sutton Bank, 78 Md. 577, 28 Atl. 
563, 23 L. R. A. 173. 

30 See post, § 42. 

■5ii Saint Nicholas Bank v. State Nat. Bank, 128 N. Y. 26; Kent v. 
D'awson Bank, 13 Blatchf. 237, Fed. Gas. No. 7,714. 

What law governs liability ot bank paying forged paper, see post, 
§ 158. 

in Kent v. Dawson Bank, 13 Blatchf. 237, Fed. Gas. No. 7,714. 

See, also, post, § 103. 

(11) 



§ 6 BANK COLLECTIONS. [Ch. 1 

An instructive case on this question was recently de- 
cided by the New York court of appeals. Plaintiff, a 
New York bank, sent, in the usual course of business, to 
defendant, a Tennessee bank, for collection, a check 
drawn on a Texas bank, and defendant sent the paper, 
indorsed by it for collection, to the Texas bank, which 
collected it, and remitted to defendant a sight draft on 
a firm in New York City. Defendant forwarded the 
sight draft to a New York bank for collection, but pay- 
ment of the draft was refused on due presentment by 
the last-named bank, the drawee being insolvent. The 
defendant claimed that the contract was a Tennessee 
contract, and that by the law of that state, as shown 
in the case of Bank of Louisville v. First Nat. Bank 
of Knoxville,^^ it would not be liable for the loss. The 
court found that there was nothing in the case to show 
that the contract had its inception in Tennessee, and 
that, as the defendant was to collect the draft in Texas, 
and pay its proceeds to plaintiff in New York, the con- 
tract was to be performed in Texas and New York, and, 
as between the laws of Tennessee and New York, was 
governed by the laws of New York.^^ 

As to the effect of the Tennessee decision above cited, 
as evidence of the common law on the subject in New 
York, the court in the case now under consideration 
said : "There is no common law peculiar to Tennessee. 
But the common laAv there is the same as that which 
prevails here and elsewhere, and the judicial exposi- 

38 8 Baxt. (Tenn.) 101. This case holds that the duty of the initial 
hank is fully performed by a transmission of the paper to a suitable 
and responsible bank at the place of payment. See, also, post, § 112. 

30 Saint Nicholas Bank v. State Nat. Bank, 128 N. Y. 26. 
(12) 



Ch. 1] RELATION AND ITS INCIDENTS. § 7 

tions of the common law there do not bind the courts 
here. The courts of this state and of other states and 
of the United States would follow the courts of that 
state in the construction of its statute law. But the 
courts of this state will follow its own precedents in the 
expounding of the general common law applicable to 
commercial transactions."*" 

Where the contract is both made and to be performed 
in the same state, it is governed by the law of that 
state, though the owner of the draft is a resident of 
another state, and sends the draft from there to be col- 
lected." 

§ 7. Consideration for undertaking to collect. 

The undertaking to collect, though apparently gratu- 
itous, is supported by a sufficient consideration, if the 
collection is entered upon by the receipt of the paper, 
and the taking of steps for its collection ;*2 for there is 
an implied contract, on the part of one delivering paper 
to a bank for collection, to pay a reasonable compensa- 
tion therefor, and on the part of the bank to take the 
steps necessary for collection.*^ 

The custom of receiving paper for collection cannot 
be considered as a mere act of gratuitous courtesy on 
the part of the bank; but is beneficial to the bank be- 

40 Saint Nicholas Bank v. State Nat. Bank, 128 N. Y. 26. 
*i Kent V. Dawson Bank, 13 BlatcM. 237, Fed. Cas. No. 7,714. 

42 Young V. Noble's Bx'rs, 2 Disn. (Ohio) 485; First Nat. Bank of 
Lyons v. Ocean Nat. Bank, 60 N. Y. 278, 19 Am. Rep. 181; Funk- 
houser v. Ingles, 17 Mo. App. 232. 

43 Central Georgia Bank v. Cleveland Nat. Bank, 59 Ga. 667. 
Pleading consideration, see post, § 175. 

(13) 



§ 7 BANK COLLECTIONS. [Ch. 1 

cause the proceeds may, and often do, remain in the 
bank for some time, and thus become a source of profit. 
The benefit thus accruing to the banlc from the general 
profits of the business, and the profits arising from ex- 
change rates, form a sufficient consideration to support 
an implied undertaking by it to take the steps necessary 
to insure payment of the paper.** 

Strictly in consonance with this doctrine it has been 
held that an agreement to forward a bill to the place 
of payment, and pay the owner the whole proceeds of 
the paper when collected, without commission or other 
compensation, if entered upon by receiving the bill and 
forwarding it for that purpose, is based on a sufficient 
consideration.*^ 

If a bank is retained to collect a draft for an agreed 
commission, and accepts the draft for purposes of col- 
lection, there is, of course, an implied promise on the 

■n Exchange Nat. Bank of Pittsburgh v. Third Nat. Banlj of New 
York, 112 U. S. 276, 288, 5 Sup. Ct. 141, 28 L. Ed. 722; Kershaw v. 
Ladd, 34 Or. 375, 56 Pac. 402; Titus v. Mechanics' Nat. Bank at 
Trenton, 35 N. J. Law, 588; Mechanics' Bank at Baltimore v. Mer- 
chants' Bank at Boston, 6 Mete. (Mass.) 13, 20; Bailie v. Augusta Sav. 
Bank, 95 Ga. 277, 21 S. B. 717, distinguishing Merchants' Nat. Bank 
of Savannah v. Guilmartin, 88 Ga. 804; Yerkes v. National Bank of 
Port Jervis, 69 N. Y. 382, 386; Bank of Utlca v. McKlnster, 11 
Wend. (N. Y.) 473, affirming 9 Wend. 46; Bank of Utica v. Smedes, 
3 Cow. (N. Y.) 662, affirming Smedes v. Bank of Utica, 20 Johns. 
372; Dyas v. Hanson, 14 Mo. App. 363, 373; Gerhardt v. Boatman's 
Sav. Institution, 38 Mo. 60, 64. See, also. Miller v. Drake, 1 Caines 
(N. Y.) 45; Forster v. Fuller, 6 Mass. 58; Union Turnpike Road v. 
Jenkins, 1 Caines (N. Y.) 389. The subsequent reversal of the case 
last cited was on other grounds, and does not affect this point. See 
Goshen & Minislnk Turnpike Road v. Hurtin, 9 Johns. (N. Y.) 217. 

45 Young V. Noble's Ex'rs, 2 Disn. (Ohio) 485. 
(14) 



Ch. Ij RELATION AND ITS INCIDENTS. § 8 

part of the bank to faithfully perform the duty of col- 
lection." 

The doctrines relating to consideration apply not 
only to sustain the undertaking as against the bank, but 
also as against the depositor, and in favor of the bank.*^ 
But though the bank is entitled to recover compensation 
for its services, it is limited to such services and the 
necessary expenses incident thereto; and so, where it 
did not discount a bill delivered for collection, it can- 
not recover the damages on protest of the bill, but only 
the expenses of protest.*® 

§ 8. Inception of relation in general. 

Like any other bailment, the contract takes its incep- 
tion from the delivery of the paper to the bank, and its 
acceptance for collection.*® 

A receipt printed on a postal card in the usual form 
given by the bank in acknowledging receipt of papers, 
with the blanks filled in in the handAvriting of the collec- 
tion clerk working under the supervision of the cashier, 
whose name in print is signed thereto, is sufficient evi- 
dence of the receipt of papers by the cashier for col- 
lection.^" 

46 American Express Co. v. Pinckney, 29 111. ,392, 407; Streeter v. 
Horlock, 8 E. C. L. 390, 1 Bihg. 34. 

*' Runyou v. Latham, 5 Ired. (N. C.) 551. 

48 Runyon v. Latham, 5 Ired. (N. C.) 551. 

■i» Sherman v. Commercial Printing Co., 29 Mo, App. 31; Lloyd v. 
West Branch Bank, 15 Pa. St. 172; Rodgers v. Stophel, 32 Pa. St. 
Ill; Houghton v. Lynch, 13 Minn. 85 (Gil. 80). 

Whether a bill was taken in payment of a debt, or merely for col- 
lection, held, under the circumstances, to be a question for the jury. 
Stephens v. Thornton, 26 111. 323. 

=0 First Nat. Bank of Birmingham v. First Nat. Bank of Newport, 

(15) 



§ q BANK COLLECTIONS. fCh. 1 

§ 9. Estoppel of baitk. 

The bank may become estopped to dispute the rela- 
tion. A case involving this question recently arose in 
Utah. A depositor loaned his deposit to the bank for 
its accommodation, in order that it might reloan it, as 
represented by the cashier, to a customer, on condition 
that the bank guaranty payment of such second loan, 
and the depositor's account was debited with the 
amount loaned to the bank, and such debit was never 
canceled or replaced by a credit. The bank afterwards 
arranged with such customer to pay up part of a prior 
loan from the bank, and take a reloan of the balance, 
and accordingly such customer executed to the bank a 
note for an amount equal to that borrowed by the bank 
from its depositor. On receipt of this note, the cashier 
represented to the depositor that it represented the 
money loaned by such depositor to the bank, and gave 
to him a receipt reciting that said note was left with 
the bank for collection and credited to his account. 
Thereafter interest paid on the note was credited to the 
depositor, but on collection of the note the bank refused 
to pay over the proceeds to him, or credit him with the 
amount. Held, that the note was the property of such 
depositor, and was held by the bank only for collection 
for his benefit, as the bank, under the circumstances, was 
estopped to repudiate the acts and representations of 
its cashier.^^ 

116 Ala. 520, 22 So. 976. See, also, Magdeburg v. Uihlein, 53 Wis. 
165, 10 N. W. 363. 

51 First Nat. Bank of Nephl v. Brown, 20 Utah, 85, 57 Pac. 877. 
Estoppel as between banks, see post, § 140. 
(16) 



Ch. 1] RELATION AND ITS INCIDENTS. § 10 

§ 10. Effect of custom and usage. i 

One placing commercial paper in a bank for collec- 
tion is deemed to assent to the reasonable customs and 
usages of banks in transacting business of that char- 
acter.^^ But a custom, to be binding, must be general 
as to place, and not confined to any particular bank or 
banks; it must also be certain and uniform, and there 
must be reasonable ground to suppose that it was 
known to both parties, or was so general that both 
would be presumed to know it.'^ 

Where the custom is general and reasonable, the de- 
positor of paper for collection is bound thereby, though 
he did not know of it.^* So the owner of paper depos- 
ited for collection is bound by the general custom of 

52 Freeman's Nat. Bank v. National Tube-Works Co., 151 Mass. 413, 
24 N. B. 779; National Bank of Commerce of Seattle v. Johnson, 6 
N. D. 180, 69 N. W. 49, 51; Davis v. First Nat. Bank of Fresno, 118 
Cal. 600, 50 Pao. 666; Bank of Washington v. Triplett, 1 Pet. (U. S.) 
25; Hallam v. Tillinghast, 19 Wash. 20, 52 Pac. 329; Howard v. 
Walker, 92 Tenn. 452, 21 S. W. 897; Jefferson County Sav. Bank v. 
Commercial Nat. Bank, 98 Tenn. 337, 39 S. W. 338. 

The customers of banks are not bound by the usages of clearing 
house associations, for "the rules and methods observed by such In- 
stitutions are adopted for their own Individual safety or convenience, 
and they are alone entitled to the advantages accruing, and alone 
assume the risks and responsibility arising therefrom." Louisiana 
Ice Co. V. State Nat. Bank of New Orleans, 1 McGloln (La.) 181, 187; 
Overman v. Hoboken City Bank, 30 N. J. Law, 61, 31 N. J. Law, 563. 

53 Grlssom v. Commercial Nat. Bank, 87 Tenn. 350; Dabney v. 
Campbell, 9 Humph. (Tenn.) 68,6; Adams v. Otterback, 15 How. (U. 
S.) 545. 

54 Jefferson County Sav. Bank v. Commercial Nat. Bank, 98 Tenn. 
337, 39 S. W. 338; Sahlien v. Bank of Lonoke, 90 Tenn. 221, 16 S. 
W. 373; Howard v. Walker, 92 Tenn. 452, 21 S. W. 897; Bank of 
Washington v. Triplett, 1 Pet, (U. S.) 25. 

(17) 



§ 10 BANK COLLECTIONS. [Ch. 1 

banks to mingle the proceeds with their general funds f^ 
also, as we shall see, by the custom to receiye checks 
in payment.^® But a custom or usage which is contrary 
to public policy or the general law will not prevail.^'^ 
Nor will one that negatives the plain and unambiguous 
terms of the contract. For example, an indorsement 
in the words : "Pay to A., or order, for account of B.," 
cannot be shown by proof of custom to pass title to A., 
instead of a mere right to collect for B.^® 

The fact that a bank, in making a collection, fol- 
lowed a custom of banks which was reasonable and 
not contrary to law, goes to show the exercise by it 
of reasonable care.^" 

(B) Title to Paper and Special Property Eights op 

Bank. 

As a general rule, the title to paper deposited for collec- 
tion remains in the depositor. This is especially true if the 
collecting bank was insolvent, within the knowledge of its 
oiReers, when it received the paper. 

But if the deposit is treated as a cash item, by an entry of 
absolute credit and the drawing and honoring of drafts 
against such credit, title passes to the bank. A conditional 

55 Freeman's Nat. Bank v. National Tube Works Co., 151 Mass. 
413, 24 N. E. 779, 21 Am. St. Rep. 461, 8 L. R. A. 42; Dorchester & 
Milton Bank v. New England Bank, 1 Cush. (Mass.) 177. 

56 See post, § 47. 

57Dabney v. Campbell, 9 Humph. (Tenn.) 680; Sahlien v. Bank 
of Lonoke, 90 Tenn. 221, 16 S. W. 373; National Bank of Commerce 
v. American Exchange Bank, 151 Mo. 320, 52 S. W. 265; D'ern v. 
Kellogg, 54 Neb. 560, 74 N. W. 844. 

58 White V. National Bank, 102 U. S. 658. 

59 Davis V. First Nat. Bank of Fresno, 118 Cal. 600, 50 Pac. 666; 
Warren Bank v. Suffolk Bank, 10 Cush. (Mass.) 582. 

(18) 



Ch. 1] RELATION AND ITS INCIDENTS. § H 

credit in advance of collection does not pass title; and the 
credit may be canceled on nonpayment of the paper. 

The form of the indorsement often determines the question 
of title. Title to paper expressly indorsed for collection does 
not pass to the bank; but a blank indorsement carries ap- 
> parent title to the bank. In most jurisdictions, the indorse- 
ment may be explained by parol, to show the true relation 
of the parties. 

If the bank discounts the paper, it does not act as a. collect- 
ing medium, but takes title to the paper. 

The collecting bank, as bailee, has a special property in- 
terest in the paper, which entitles it to possession as against 
all persons but the true owner. This right protects the paper, 
while in possession of the b*ank as bailee, against garnishment 
or attachment proceedings by creditors of the owner. 

The collecting bank has also a lien on the paper in certain 
cases ; and a right to set off the paper against an indebted- 
ness of the depositor on general account. 

§ 11, As a general rule, title remains in depositor. 

In pursuance of the general bailment theory of the 
nature of the contract for collection, it is practically a 
universal rule tliat title to paper deposited with a bank 
for collection in the ordinary course of business does 
not pass to the bank.*" In other words, a mere deposit 
for collection does not make the bank a purchaser of 
the paper."' 1 

This position is also in harmony with the general 

00 Oppenheim v. West Side Bank, 22 Misc. Rep. 722, 50 N. Y. Supp. 
148; Yerkes v. National Bank of Port Jervis, 69 N. Y. 382, 386; First 
Nat. Bank of Ft. Worth v. Payne (Ky.) 42 S. W. 736. 

See, also, cases cited in remaining notes to this section. 

61 Bailie v. Augusta Sav. Bank, 95 Ga. 277, 21 S. B. 717 ; Wilson y. 
Tolson, 79 Ga. 137; Merchants' Nat. Bank v. McNulty, 36 Iowa, 229. 

(19) 



§ 11 BANK COLLECTIONS. [Ch. 1 

rule applicable to negotiable instruments, viz., that a 
transfer for collection without indorsement does not 
pass title.''^ 

From a careful study of all the cases, we find one 
acknowledged test in determining the question of title 
independently of the form of the indorsement. The 
only difference in the cases arises from slight variations 
in the application of this test to particular circum- 
stances. This test may be stated in the form of a gen- 
eral rule that title does not pass to the bank unless it 
has become, by the nature of the transaction, absolutely 
responsible to the depositor for the amount of the de- 
posit.''^ Consequently the question whether title passes 
in a particular transaction is usually and almost neces- 
sarily one of fact.^* 

If the bank is authorized to collect the note and apply 
the proceeds on a debt of the owner to the bank, the 
bank is merely an agent of such owner, and title does 
not pass, unless the bank received the note as collat- 
eral. '^'^ 

62 Carter v. Lehman, 90 Ala. 126, 7 So. 735; Fuller v. Bennett, 55 
Mich. 357, 21 N. W. 433. Contra, see French v. Jarvis, 29 Conn. 347. 

63 Dickerson v. Wason, 47 N. Y. 439, 7 Am. Rep. 455, reversing 54 
Barb. (N. Y.) 230; Scott v. Ocean Bank, 23 N. Y. 289; National 
Butchers' & Drovers' Bank v. Hubbell, 117 N. Y. 384, 15 Am. St. 
Rep. 515; Armour Packing Co. v. Davis, 118 N. C. 548, 24 S. E. 
365; In re State Bank, 56 Minn. 119, 45 Am. St. Rep. 454. 

6* United States Nat. Bank of Omaha v. Gear, 53 Neh. 67, 73 N. W. 
266; Metropolitan Nat. Bank v. Loyd, 25 Hun, 101, 90 N. Y. 530; 
National Park Bank v. Seaboard Bank, 114 N. Y. 28, 34, 20 N. E. 
632, 11 Am. St. Rep. 612 ; Titus v. Mechanics' Nat. Bank, 35 N. J. 
Law, 589; In re State Bank, 56 Minn. 119, 57 N. W. 336; Fifth 
Nat. Bank v. Armstrong, 40 Fed. 46; St. Louis & San Francisco Ry. 
Co. V. Johnston, 133 U. S. 566, 10 Sup. Ct. 390, 27 Fed. 243. 
05 Prescott v. Leonard. 32 Kan. 142, 4 Pac. 172. 
(20) 



Ch. 1] RELATION AND ITS INCIDENTS. § 13 

The owner of municipal bonds, who leaves them as 
a special deposit with a bank, which was also the agent 
of the municipality for payment of the interest and 
principal on the bonds, does not lose or impair his title 
thereto by allowing the bank to collect and pay over 
to him the proceeds of the interest coupons ; and hence 
can recover against the municipality in case the bank 
failed after using, for other purposes, the money de- 
posited with it by the city for payment of the prin- 
cipal.^® 

§ 12. Title does not pass to bank insolvent when paper was 
received. 

Title does not pass where the bank at the time of 
receiving the paper is hopelessly insolvent, within the 
knowledge of the officers."'^ This, of course, is on the 
ground that the contract for collection was fraudulent 
in its inception. 

§ 13. Title to paper received and treated as cash passes to 
the bank. 

If the paper is deposited and treated as cash, the case 
comes within our general rule that title passes if the 
bank makes itself absolutely liable to the depositor for 
the amount of the deposit.''* 

<ie Gibson v. City of Erie, 196 Pa. St. 7, 46 Atl. 102. 

07 City of Philadelphia v. Eckels, 98 Fed. 485; St. Louis & San 
Francisco Ry. Co. v. Johnston, 133 U. S. 566, 10 Sup. Ct. 390; Rich- 
ardson V. Denegre, 93 Fed. 572; Peck v. First Nat. Bank of New 
York, 43 Fed. 357; Importers' & Traders' Nat. Bank v. Peters, 123 
N. Y. 272, 25 N. E. 319, affirming 51 Hun, 640, 4 N. Y. Supp. 599. 

68 United States Nat. Bank of Omaha v. Geer, 53 Net. 67, 73 N. 

(21) 



§ 13 BANK COLLECTIONS. [Ch. 1 

The chief facts going to show an intention to treat 
the dejiosit as a cash deposit are the entry of absolute 
credit for the amount of the paper, and the drawing 
and honoring of drafts on the fund.®® Thus it has been 
held that a general deposit for which credit is given to 
the depositor does not create a bailment, but the rela- 
tion of debtor and creditor;'^" and that a deposit of 
paper indorsed "for deposit and credit," followed by 
drafts against an immediate credit given therefor under 
a long-continued course of dealing with the bank, pass 
title to the bank;'^^ and that if paper, indorsed in blank, 
is sent by the owner for collection and credit, and he 
at the same time draws a sight draft against the fund 
in accordance with a long-continued custom, title passes 
on receipt of the paper.'^^ So, also, if the paper is 
simply indorsed in blank, and deposited for credit, and 
the depositor is allowed to draw against the fund."^ 

Sometihies the combination of circumstances makes 
it very clear that title passed to the bank. Thus, where 
it was the intent of the parties that the paper delivered 
to a bank should be immediately turned into cash, and 
credit was immediately given before the bank had dis- 
posed of the paper or collected its proceeds, and inter- 

W. 266; Higgins v. Hayden, 53 Neb. 61, 73 N. W. 280; Friberg v. 
Cox, 97 Tenn. 550, 37 S. W. 283; Williams v. Cox, 97 Tenn. 555, 
37 S. W. 282; Commercial Bank of Albany v. Hughes, 17 Wend. 
(N. Y.) 94, 100; Pacific Bank v. Mitchell, 9 Mete. (Mass.) 297. 

69 See cases cited in notes 70-73, infra. 

70 Commercial Bank of Albany v. Hughes, 17- Wend. (N. Y.) 94, 
100. 

"1 Fourth Nat. Bank of Cincinnati v. Mayer, 89 Ga. 108. 
T2 Clark V. Merchants' Bank, 2 N. Y. 380, reversing 1 Sandf. 498. 
"Williams v. Cox, 97 Tenn. 555. 
(22) 



Ch. 1] RELATION AND ITS INCIDENTS. § 14 

est was paid on such credit, and it was subject to draft, 
title passed to tlae bank, as the transaction was a sale, 
and not merely a delivery for collection, notwithstand- 
ing the fact that the paper was indorsed "for account 
of" and was transmitted ostensibly "for collection and 
credit." ■'^ 

Equally clear is a case where negotiable paper was de- 
livered to a bank with the understanding that it was to 
credit the amount thereof against existing overdrafts, 
and such credit was given, and the bank cashed outstand- 
ing checks pursuant to such understanding, and also 
cashed a check dra!wn contemporaneously with the de- 
l^osit; the conduct of the parties being entirely incon- 
sistent with the theory of a mere bailment for collec- 
tion.'^^ So, also, Avhere a check was deposited and accepted 
as cash, and so charged to another bank, to -which it was 
sent for collection, and the sending bank gave therefor 
to the dex)ositor cash aud a certificate of deposit for part, 
and absolute ci'edit for the balance, of the amount.'"' If, 
however, a check is credited as a check, and not as cash, 
the bank is not a purchaser.^ ^ 

§ 14. Presumptions. 

The supreme court of California has laid down the 
rule distinctly that "Avhen a check on the same bank is 

74 United States Nat. Bank of Omaha v. Geer, 53 Neb. 67, 73 N. 
W. 266. See, also, Beal v. City of Somervllle, 1 C. C. A. 598, 50 
Fed. 647. 

75 Hlgglns V. Hayden, 53 Neb. 61, 73 N. W. 280. 
70 Prlberg v. Cox, 97 Tenn. 550, 37 S. W. 283. 

77 Bailie V. Augusta Say. Bank, 95 Ga. 277, 21 S. E. 717. In this 
case, the entfy in the depositor's pass book was, "Check on First 
National Bank of Wilmington, $1,000." 

(23) 



§ 14 BANK COLLECTIONS. [Ch. 1 

presented by a depositor Avitli his pass booli to the receiv- 
ing teller, who merely receives the check and notes it 
in the pass book, nothing more being said or done, this 
does not of itself raise a presumption that the check was 
received as cash or otherwise than for collection."'^® The 
court in the argument quotes with approval from the 
decision of Lord Denham, C. J., in Boyd v. Emerson,'^^ to 
the effect that the depositor in that case, who had merely 
said, "Place this to my account," or "to my credit," 
should have made some definite statement that he in- 
tended it as a cash deposit, if he did so intend. 

A different presumption applies in case of checks or 
drafts drawn in favor of the bank in which they are de- 
posited. In the language of the supreme court of Penn- 
sylvania: "Drafts or checks held by banks, drawn in 
their own favor, are priinu furic presumed to have been 
received by them on deposit as cash from their custom- 
ers, and not to have been deposited for collection merely, 
unless some evidence is adduced to shoAV that fact. That 
a check was taken as cash, it may well be impossible 
for a bank, in the multiplicity of its transactions, to 
trace and prove. It would be credited in the depositor's 
account simply as so much money, and no entry neces- 
sarily made in any other book to show from whom it 
was received. .Vs it Mas draAvn in favor of the cashier 
of the bank, the indorsement of the depositor would not 
be required. It is not a good argument, therefore, to 
say that, if the bank gave value for this check, it was in- 
cumbent on them to prove it. The presumption resting 

T'^ National Gold Bank & Trust Co. v. McDonald, 51 Cal. 64, 68. 
"2 Adol. & El. 184. 
(-24) 



Ch. 1] RELATION AND ITS INCIDENTS. § 15 

on the usual course of transactions of this nature was 
in their favor, and stahit praesimiptio donee probetur in 
contrarium."^'^ 

§ 15. Effect of credit in advance of collection — Cancellation 
of credit on dishonor of paper. 

Considei'able litigation has arisen out of the practice 
of banks to credit in advance of collectio;i, and charge 
back the amount in case of nonpayment.*^ The decided 
Aveight of authority is to the effect that the practice of 
at once crediting pajier, deposited for collection, to the 
account of the depositor, is a mere gratuitous favor on 
the part of the bank, and does not amount to a binding- 
custom, no matter how long continued,*^ and hence does 
not preclude the bank from charging back the amount 
of the credit if, without negligence on its part, the paper 
is not paid.*^ This is, of course, equivalent to a holding 
that title does not pass, though tlie bank makes advances 

so Gettysburg Nat. Bank v. Kuhns, 62 Pa. St. 88, 92. 

51 See, also, post, § 165, for right to charge back amount of forged 
or altered paper. 

52 Balbach v. Frelinghuysen, 15 Fed. 675, 683, citing Morse, Banks 
& Banking, p. 427 ; Armour Packing Co. v. Davis, 118 N. C. 548, 
24 S. E. 365; In re State Bank, 56 Minn. 119, 45 Am. St. Rep. 454; 
National Butchers' & Drovers' Bank v. Hubbell, 117 N. Y. 384, 15 
Am. St. Rep. 515. See, also, Scott v. Ocean Bank, 23 N. Y. 289, 
292, where it was held that the bank had not elected to give credit 
absolutely before the proceeds had been realized. 

83 Bailie v. Augusta Sav. Bank, 95 Ga. 277, 281, 21 S. E. 717; 
Trinidad First Nat. Bank v. Denver First Nat. Bank, 4 Dill. 290, 
Fed. Cas. No. 4,810; Levi v. National Bank of Missouri, 5 Dill. 104, 
Fed. Cas. No. 8,289; Beal v. City of Somerville, 50 Fed. 647; Armour 
Packing Co. v. Davis, 118 N. C. 548, 24 S. E. 365; Giles v. Perkins, 9 
East, 12. 

(25) 



§ IS BANK COLLECTIONS. [Ch. 1 

or remittances on general account on the strength of the 
anticipated collection.** 

If there is a tacit agreement arising from the custom- 
ary dealings of the parties that, though credit is given 
and drafts honored at once for the amount of paper de- 
posited for collection, the amount thereof shall be 
charged back against his account in case of nonpayment, 
the transaction is merely a bailment for collection, and 
the bank has only the title of a bailee for that specific 
purpose.*^ So a credit "subject to payment" is merely 
pi'ovisional, and if the bank, using due diligence, fails 
to collect, it maj charge back or cancel the credit.*^ 

Where a bank receives paper "for collection on ac- 
count" or "for collection and credit," it does not own 
the amount until it is collected, and though credit be 
given therefor before collection, the bank may cancel 
such credit if the: paper is dishonored.*" 

Even an unqualified indorsement to the bank, coupled 
with the giving of credit to the depositor, Avill not pass 
title to the bank, if, on nonpayment of the paper, the 
amount thereof is to be charged back.** It has also been 

s* Dickerson v. Wason, 47 N. Y. 439, 7 Am. Rep. 455, reversing 54 
Barb. 230; Hoffman v. Miller, 9 Bosw. (N. Y.) 334. 

83 Armour Packing Co. v. Davis, 118 N. C. 548, 24 S. B. 365; First 
Nat. Bank of Richmond v. Davis, 114 N. C. 343, and cases cited. 

so Fifth Nat. Bank v. Armstrong, 40 Fed. 46; Givan v. Bank of 
Alexandria (Tenn. Ch.) 52 S. W. 923. 

•" Armstrong v. National Bank of Boyertown, 90 Ky. 431. 

»s Armour Packing Co. v. Davis, 118 N. C. 548, 24 S. B. 365. A 
bank account settled up under the mistaken belief that certain drafts 
deposited for collection had been paid may be opened and corrected 
on a showing that the drafts had not been paid. Mechanics' Bank 
V. Barp, 4 Rawle (Pa.) 383. 



Ch. 1] RELATION AND ITS INCIDENTS. 8 15 

held that the title to a draft does not pass to a bank 
in which the draAver, after acceptance by the drawee, 
deposits the draft for "collection and credit," where a 
rule of the bank, known to the depositor, provides that 
the bank acts only as agent in making collections, and 
assumes no liability other than in the selection of suit- 
able subagents, and in forwarding the paper to them, 
and it is the custom of the bank, also known to the de- 
positor, to charge back against the account of a customer 
the amount of a draft deposited by him, in case tlio 
drawee or acceptor does not pay it in due course.*" 

There are some cases which apparently hold differ- 
ently from the authorities just considered, but on care- 
ful examination it will be found that the same practical 
result is reached. These cases hold that title passes to 
the bank in which checks are deposited for collection 
under au agreement to credit their amount to the ac- 
count of the depositor, and to charge back such amount 
if the checks were not duly paid; biit that, in such 
case, on nonpayment of the checks, and rescission of the 
credit, the title of the bank is devested."" 

There are a few decisions, however, that are in direct 
conflict with the rules here announced. They hold that 
where the bank, following a long-continued custom or 
prearrangement, or jjursuant to a contract with the de- 
positor of paper for collection, immediately places the 
amount to his credit, and allows him to draw against 

so South Park Foundry & Machine Co. v. Chicago G. "W. Ry. Co., 
75 Minn. 186, 77 N. W. 796; In re State Bank, 56 Minn. 119, 57 N. 
W. 336. 

00 Brusegaard v. "Ueland (In re Receivership of Washington Bank) 
72 Minn. 283, 75 N. W. 228. 

(27) 



§ 16 BANK COLLECTIONS. [Ch. 1 

the same as cash, title passes to the bauk, though, if 
the paper is not paid, the bank has the reserved right to 
charge it back.^^ 

§ 16. Credit of cheeks drawn on collecting bank. 

A credit given to a customer of the bank on depositing 
for collection checks on that bank may be canceled on 
subsequently discovering that the drawer had no funds 
there, or had overdrawn and become insolvent.*^ 

On the question of the bank's duty, in such case, to 
notify the depositor at once of the state of the drawer's 
account, the court, in Kilsby v. Williams,"^ states that 
the enforcement of such a duty "might be productive of 
serious inconvenience, inasmuch as it is often impossi- 
ble to ascertain, till the close of the day at the clearing 
house, what sums of money may be paid in to each par- 
ticular account, and what the drafts are upon it. I 
think, therefore, that the defendant might, in this case, 
receive the check in question, subject to its being hon- 
ored or not, according to the course of Robertson's [the 
drawer's] dealing Avith them on that day." The same 
doctrine is recognized by the supreme court of Pennsyl- 
vania in the statement that "it is manifestly impossible 
for the officers of a bank to keep ever in memory tlfe 
state of each depositor's account."''^ 

91 Ayres v. Farmers' & Merchants' Bank, 79 Mo. 421; BuUene v. 
Coates, 79 Mo. 426; Clark v. Merchants' Bank, 2 N. Y. 380. See, 
also, Scott V. Ocean Bank. 23 N. Y. 289, 292. 

92 National Gold Bank & Trust Co. v. McD'onald, 51 Cal. 64. 

«:'■ Kilsby V. Williams, 5 Barn. & Aid. 815 ; Boyd v. Emmerson, 2 
Adol. & El. 184. 
9-t Peterson v. Union Nat. Bank, 52 Pa. St. 206, 209. 
(28) 



Ch. 1] RELATION AND ITS INCIDENTS. § 17 

If the depositor of a check for collection in the bank 
on which it was drawn knew at the time he deposited it 
that it was worthless for Avant of any fnnds of the draw- 
er in the bank to meet it, the right of the bank to cancel 
a credit given on receipt of the paper is unquestionable, 
for the AA^hole transaction is a fraud on the bank, both 
on the part of the drawer and the depositor of the 
check.^^ 

§ 17. Title as affected by form of indorsement, 

If the depositor of paper for collection desires to have 
the contract express beyond doubt his intention to re- 
tain title, he should place on it a formal indorsement 
"for collection." Such an indorsement is restrictive,^* 
and destroys further negotiability,^'' and prevents the 
passage of the title to the paper.^^ 

95 Peterson v. Union Nat. Bank, 52 Pa. St. 206, 209. See, also, 
County of Middlesex v. State Bank, 32 N. J. Eq. 467. 

90 Freeman's Nat. Bank v. National Tube Works Co., 151 Mass. 
413, 24 N. E. 779, 21 Am. St. Rep. 461, 8 L. R. A. 42; Balbach v. 
Prelinghuysen, 15 Fed. 675; Goetz v. Bank of Kansas City, 119 U. 
S. 551; Ward v. Smith, 7 Wall. (U. S.) 447; Commercial Bank of 
Pennsylvania v. Armstrong, 148 U. S. 50; Claflin v. Wilson, 51 
Iowa, 15; Merchants' Nat. Bank of St. Paul v. Hanson, 33 Minn. 
40; National Butchers' & Drovers' Bank v. Hubbell, 117 N. Y. 384; 
Bowman v. First Nat. Bank of Spokane, 9 Wash. 614; Mechanics' 
Bank v. Valley Packing Co., 70 Mo. 643, affirming 4 Mo. App. 200; 
Blakeslee v. Hewett, 76 Wis. 341, 44 N. W. 1105; People's Bank of 
Lewisburg v. Jefferson County Sav. Bank, 106 Ala. 524. 

97 Williams v. Jones, 77 Ala. 294, 305; People's Bank of Lewisburg 
V. Jefferson County Sav. Bank, 106 Ala. 524, 17 So. 728; Mechanics' 
Bank v. Valley Packing Co., 70 Mo. 643. See, also, cases cited in 
preceding note. 

98 Balbach v. Frelinghuysen, 15 Fed. 675 ; Evansville Bank v. 
German- American Bank, 155 U. S. 556, 562 ; People's Bank ot Lewis- 

(29) 



§ 17 BANK C0LL,BM:!TI0NS. [Ch. 1 

A little broader statement of the rule is that when 
an instrument is indorsed to a bank for collection and 
credit, the bank obtains no title thereto, and no right 
to hold it in any other capacity than as bailee or agent, 
and that the indorsement for collection is notice to any 
person into A\'hose hands the paper may come that the 
oAvner has not parted with his beneficial title, and that 
whoe'S'er secures possession of it in the course of its 
transmission from bank to bank in the process of col- 
lection holds it as the property of the owner.^® The col- 
lecting bank cannot, therefore, become an innocent pur- 
chaser for value of an instrument indorsed restrictively 
to it for collection.^"" 

burg V. Jefferson County Sav. Bank, 106 Ala. 524, 17 So. 728; Best 
V. Nokomis Nat. Bank, 76 111. 608; Locke v. Leonard Silk Co., 37 
Mich. 479; Crane v. Fourth St. Nat. Bank, 173 Pa. St. 566; Suther- 
land V. First Nat. Bank of Ypsilanti, 31 Mich. 230; First Nat. Bank 
of Crown Point v. First Nat. Bank of Richmond, 76 Ind. 561; Rock 
County Nat. Bank v. Hollister, 21 Minn. 385; Williams v. Jones, 77 
Ala. 294, 305; Treuttel v. Barandon, 8 Taunt. 100; Sigourney v. 
Lloyd, 8 Barn. & C. 622 ; Lloyd v. Sigourney, 5 Bing. 525. See, 
also, cases cited in the two preceding notes. 

»o Tyson v. Western Nat. Bank of Baltimore, 77 Md. 412, 26 Atl. 
520, 23 L. R. A. 161; National Bank of Commerce of Seattle v. John- 
son, 6 N. D. 180, 69 N. W. 49; Bvansville Bank v. German-American 
Nat. Bank, 155 U. S. 556, 15 Sup. Ct. 221; Commercial Nat. Bank v. 
Armstrong, 148 U. S. 50, 13 Sup. Ct. 533; Boykin v. Bank of Fayette- 
ville, 118 N. C. 566, 24 S. E. 357; Manufacturers' Nat. Bank v. Con- 
tinental Bank, 148 Mass. 553, 20 N. E. 193; Freeman's Nat. Bank v. 
National Tube-Works Co., 151 Mass. 413, 24 N. E. 779; Naser v. 
First Nat. Bank, 116 N. Y. 492, 22 N. E. 1077; National Butchers' & 
Drovers' Bank v. Hubbell, 117 N. Y. 384, 22 N. E. 1031; Blaine v. 
Bourne, 11 R. I. 119; Hoffman v. First Nat. Bank of Jersey City, 46 
N. J. Law. 604; Merchants' Nat. Bank of St. Paul v. Hanson, 33 
Minn. 40, 21 N. W. 849. 

100 People's Bank of Lewishurg v. Jefferson County Sav. Bank 106 
(30) 



Ch. 1] RELATION AND ITS INCIDENTS. § 17 

Though the bank does not become the equitable owner 
of the paper under such an indorsement, it may be said 
to have the bare legal title, as bailee, for purposes of col- 
lection only.^"^ The legal title to paper so indorsed 
passes to the indorsee bank only so far as to enable it 
to demand and enforce paj^nent, and the owner may 
control the paper until paid, and intercept the proceeds 
in the hands of an intermediate agent.^"^ 

There are several variations of the simple indorsement 
"for collection," evidencing the same intent to retain 
title in the indorser. Thus an indorsement "for collec- 
tion for account of" a certain person does not pass ti- 
tle •,'^°^ nor does the indorsement : "Pay to A., or order, 
for account of B. i"^"* nor do the indorsements "for col- 
lection on account," or "for collection and credit." ^"^ 
But an indorsement by the payee, "Pay to the 2nd Na- 
tional Bank of M., for collection for account of H., ex- 
ecutor of A., deceased," has been held to pass all his 
title to the bank.^'"' As to the effect of an indorsement 
"for deposit," there seems to be a difference of opinion, 

Ala. 524,17 So. 728; Wilson v. Tolson, 79 Ga. 137; Abell Note Bro- 
kerage & Bond Co. V. Hurd, 85 Iowa, 559, 52 N. W. 488; Cottle v. 
Cole, 20 Iowa, 485. 

101 Evansville Bank v. German-American Nat. Bank, 155 TJ. S. 556. 
Payment of a note, payable at a bank, and specially indorsed to 

it for collection, should be made to tbe bank or its agent, and a 
payment to any other person is made at the payor's risk. Bar- 
nett V. Ringgold, 80 Ky. 289, 291. 

102 Branch v. United States Nat. Bank, 50 Neb. 470. 70 N. W. 34; 
Dickerson v. Wason, 47 N. Y. 439. 

103 First Nat. Bank of Crown Point v. First Nat. Bank of Rich- 
mond, 76 Ind. 561. 

104 White V. National Bank, 102 U. S. 658. 

105 Armstrong v. National Bank of Boyertown, 90 Ky. 431. 

106 FawsiBtt V. National Life Ins. Co., 5 111. App. 272. 

(31) 



§ 18 BANK COLLECTIONS. [Ch. 1 

for it has been held that an indorsement "for deposit 
to the credit of" the depositor do6s not pass title to the 
bank ;i"^ and it has also been held, to the contrary, that 
an indorsement by the payee of a draft, "for deposit" 
in a specified bank to his credit, creates more than a 
mere agency for collection, and gives authority to the 
bank to treat the proceeds as an absolute general de- 
posit, and use them accordingly.^"® The latter rule is 
probably the better law. It must be understood, how- 
eA'er, that a long-continued custom or business usage 
between the bank and the depositor, making a deliv- 
ery of paper Avith the indorsement "for deposit" a de- 
livery for collection only, will control as between 
them.i°9 

If the delivei-y of paper indorsed "for collection and 
credit" be followed by acts negativing an intention to 
retain title, such as a deposit of the paper as cash, title 
passes to the bank."" 

§ 18. Blank indorsement passes title. 

That a blank indorsement by the payee or holder or- 

lOT Freeman v. Exchange Bank of Macon, 87 Ga. 45. But see 
Fourth Nat. Bank of Cincinnati v. Mayer, 89 Ga. 108. 

See, also, Central Railroad v. First Nat. Bank of Lynchburg, 73 
Ga. 383. 

The indorsee cannot sue the indorser. White v. National Bank, 
102 U. S. 658; Lee v. Chillicothe Branch Bank, 1 Bond, 387, Fed. 
Cas. No. 8,186. 

108 Metropolitan Nat. Bank v. Merchants' Nat. Bank, 182 111. 367, 
55 N. E. 360, affirming 77 111. App. 316 ; Ditch v. Western Nat. Bank 
of Baltimore, 79 Md. 192, 29 Atl. 72, 138. 

108 National Commercial Bank v. Miller, 77 Ala. 168. 

110 Midland Nat. Bank v. Roll, 60 Mo. App. 585. See, also ante 
§ 13. 

(32) 



Ch. l] RELATION AND ITS INCIDENTS. § 18 

dinarily carries the title to the banlc is hardly subject to 
question.'^ ^ 

A bank in possession of a note indorsed in blank has 
power to sell or pledge it, since it has all the indicia of 
title."- 

In New York, the rule is that \A'here a customer, hav- 
ing a general account, deposits a check indorsed in 
blank, and receives credit to the amount thereof on his 
pass book, which is returned to him, title to the check 
passes to the bank, the court stating, however, that, if 
the check had been deposited for collection, the prop- 
erty would have remained in the depositor."^ Yet, as 
to all persons having notice of the fact that the paper 
was delivered for collection only, it will remain the 

iiiDoppelt T. National Bank of Republic, 175 111. 432, 51 N. E. 
753, affirming 74 111. App. 429; Vickrey v. State Savings Ass'n, 21 
Fed. 773; Cody v. City Nat. Bank of Grand Rapids, 55 Mich. 379; 
Gaar v. Louisville Banking Co., 11 Bush (Ky.) 180, 21 Am. Rep. 
209; Miller v. Henry, 54 Ala. 120; Parwell v. Meyer, 36 111. 510; 
Bowers v. Trevor, 5 Blackf, (Ind.) 24; Whitworth v. Pelton, 81 Mich. 
98, 45 N. W. 500. 

Option of hank to discount or collect paper indorsed in blank, see 
post, § 20. 

Rights of correspondent bank in proceeds, where paper was in- 
dorsed in blank to initial bank, see post, § 145. 

112 Greneaux v. Wheeler, 6 Tex. 515. 

The fact that one in possession of a note payable to bearer, or 
payable to order and indorsed in blank, is an attorney at law, is not 
notice to a purchaser that he holds it for collection only. Id. 

113 Metropolitan Nat. Bank v. Loyd, 90 N. Y. 530, 535. See, also, 
Brooks v. Bigelow, 142 Mass. 6, where the court finds the law of 
New York to be as stated in the text; Scott v. Ocean Bank, 23 N. 
Y. 289; Brahm v. Adkins, 77 111. 263; Bank of Republic v. Millard, 
10 Wall. (U. S.) 152; Story, Bailments, § 88. 

In St. Louis & San Francisco Ry. Co. v. Johnston, 133 V. S. 566, 
575, the case of Metropolitan Nat. Bank v. Loyd, 90 N. Y. 530, 535, 

(33) 



§ 19 BANK COLLECTIONS. [Ch. 1 

property of the depositor, notwithstanding his indorse- 
ment in blank."* 

At variance, however, with the doctrine of the text, is 
a Kansas case holding that a bank receiving a note 
from the payee indorsed in blank by him, with author- 
ity to collect and apply the proceeds to a debt due from 
him to the bank, is niereh^ an agent for collection, and 
does not hold the note as collateral security, or as own- 
er."* 

§ 19. Parol evidence. 

It is a rule very generally applied that the true rela- 
tionship between the parties, and the real nature of 
the transaction, may be shown, notwithstanding the 
form and terms of the indorsement.^^'' Hence, the fact 
that an indorsement is unrestricted is not always con- 
clusive on the question of title j but it may be shown 
by parol that it was intended for collection only.^^'^ 

is cited to ttie proposition that if the bank had transferred the draft 
to one occupying the position of a bona fide holder, such transfer 
would have conferred title on its transferee by reason of its reputed 
ownership, so far as the latter was concerned. 

114 Blaine v. Bourne, 11 R. I. 119. 

115 Prescott V. Leonard, 32 Kan. 142. To same effect is Balbach 
V. Prelinghuysen, 15 Fed. 675. 

116 United States Nat. Bank of Omaha v. Geer, 53 Neb. 67, 73 N. 
W. 266; Roberts v. Snow, 27 Neb. 425, 43 N. W. 241; Corbett v. 
Fetzer, 47 Neb. 269, 66 N. W. 417; Holmes v. First Nat. Bank of 
Lincoln, 38 Neb. 326, 56 N.W. 1011. See, also, Davis v. Morgan, 64 
N. C. 570. 

iiT Lawrence v. Stonington Bank, 6 Conn. 521; Barker v. Prentiss, 
6 Mass. 430; Armour Packing Co. v. Davis, 118 N. C. 548, 24 S. B. 
365. See, also, cases cited in preceding note. 

An unrestricted indorsement made without consideration "to the 
order of" another bank held to be for collection only Freeman's 
(34) 



Ch. 1] RELATION AND ITS INCIDENTS. | 20 

Where the indorsement is clear and unequivocal, the 
federal courts refuse to allow its terms to be varied by 
parol, and have held that parol evidence is not admis- 
sible to show that title passed under an indorsement 
to pay "to A., or order, for account of B.," on its face 
creating merely an agency for collection.^^* 

§ 20. Bank discounting paper has title. 

Discounting is merely loaning money on commercial 
paper, with the right to take interest in advance."^ 

In the words of Justice Story : "Nothing can be clear- 
er than that, by the language of the commercial world, 
and the settled practice of banks, a discount by a bank 
means, ex vi termini, a deduction or drawback made 
upan its advances or loans of money upon negotiable 
paper, or other evidences of debt, payable at a future 
day, which are transferred to the bank."^^° There is no 
question but that, if the bank actually discounts the pa- 
per, it obtains title thereto.^^^ 

A bank is the owner of a note purchased by it from 
the payee before maturity, though, after maturity, on 
sending the note to another bank for collection, it sent 

Nat. Bank v. National Tube Works Co., 151 Mass. 413, 24 N. B. 
779, 21 Am. St. Rep. 461, 8 L. R. A. 42. 

118 Wtite V. National Bank, ■ 102 XJ. S. 658. Proof of custom is 
not admissible to vary the effect of such indorsement. Id. 

119 Niagara County Bank v. Baker, 15 Ohio St. 68; Fleckner v. 
Bank of United States, 8 Wheat. (U. S.) 338, 350; New York Fire- 
men Ins. Co. V. Ely, 2 Cow. (N. Y.) 678, 699; People v. XJtica Ins. 
Co., 15 Johns. (N. Y.) 358, 392; Farmers' & Mechanics' Bank v. Bald- 
win, 23 Minn. 198. 

120 Fleckner v. Bank of United States, 8 Wheat. (U. S.:i 338, 350. 

121 See cases cited in notes 122-126, infra. 

(35) 



§ 20 BANK COLLECTIONS. [C'h. 1 

to the maker, for execution by him, a new note, pay- 
able to the original payee, and extending the time of 
payment; it appearing that it was the custom of the 
bank to have renewals executed in this manner, and 
afterwards indorsed by the payee.^^^ 

The fact that a bank had adopted and followed a gen- 
eral rule that, in receiving checks or drafts on deposit 
or for collection, it acted only as the collecting agent 
of the depositor, A^ill not prevent the bank from waiving 
such rule in a particular case, and taking absolute title 
to a draft by discounting it.^^^ And a bank actually 
discounting a draft accompanying a bill of lading be- 
comes the owner of the goods to the extent of the amount 
of the draft, and, the draft having been dishonored, may 
enforce its claim as against creditors of the drawer, 
though its usual custom was to act merely as collect- 
ing agent, and charge back the amount of all unpaid 
drafts.^^'' 

A bank instructed to apply the proceeds of paper in- 
dorsed in blank in a certain manner, but not instructed 
as to how to realize the proceeds, may elect to discount 
or collect ;^^^ but if it be given the option to hold the 
paper for collection under the indorsement to that ef- 
fect, or to discount it and send a check for the amount, 
and it sends the check accordingly, it is the owner of 
the paper.^^" 

122 First Nat. Bank of Ft. Collins v. Hughes (Cal.) 46 Pac. 272. 

123 American Trust & Savings Bank v. Austin, 25 Misc. Rep. 454, 
55 N. Y. Supp. 561. 

124 American Trust & Savings Bank v. Austin, 25 Misc. Rep. 454, 
55 N. Y. Supp. 561. 

125 Drown V. Pawtucket Bank, 15 Pick. (Mass.) 88. 

126 Payne v. Albany City Nat. Bank, 3 Ind. App. 214, 28 N E 432 
(36) 



Ch. 1] RELATION AND ITS INCIDENTS. § 22 

§ 21. When title of bank revests in depositor. 

Where, however, title to checks deposited in a banlt 
for collection has once vested in the banlc, it is not de- 
vested by the mere failure of the bank before collection 
is made;^^'^ but is devested on a rescission of credit 
given in advance of collection, made pursuant to an 
agreement to that effect, in case the paper is not paid 
when due.^^® 

It is only a rescission based on nonpayment of 
the paper that will work such a revesting of title. 
So, where the owner of a certificate of deposit in- 
dorsed it to a bank, and received credit therefor, the ti- 
tle to the certificate did not repass to Iiim, so that it 
could be attached as his property, by the action of the 
bank in charging the amount of the certificate back to 
his account because of a mere suspicion of the insol- 
vency of the issuing bank.^^^ 

§ 22. Special interest of bank as bailee. 

Though title does not pass to the banli, nevertheless, 
as bailee, it has a special interest in the paper and any 
accompanying collaterals. This special interest as bailee 
entitles the bank to possession as against all but the 
bailor,!^" and hence will prevent an attachment of the 

12" Brusegaard v. Ueland (In re Receivership of Washington Bank) 
72 Minn. 283, 75 N. W. 228. 

12S Brusegaard v. Ueland (In re Receivership of Washington Bank) 
72 Minn. 283, 75 N. W. 228. See, also, ante, § 15. 

120 First Nat. Bank of Los Angeles v. Dickson, 6 Dak. 301, 50 N. 
W. 124. 

130 Corn Exchange Bank of Chicago v. Blye, 2 N. Y. St. Rep. 112; 
People's State Bank v. St. Landry State Bank, 50 La. Ann. 528, 24 
So. 14. 

(37) 



8 22 BANK COLLECTIONS. [Ch. 1 

paper by a creditor of the bailor during the term of the 
bailment."^ This is also in accord with the rule that un- 
paid commercial paper, payable to the order of the sup- 
posed trustee, is not attachable by trustee process ; for 
"it is not money, goods, effects, or credits, in the sense 
of the statute. It may never be paid.""^ 

131 Corn Exchange Bank of Chicago v. Blye, 2 N. Y. St. Rep. 112; 
Hartford v. Jackson, 11 N. H. 145'; Truslow v. Putnam, 4 Abb. Dec. 
(N. Y.) 425, and note. See, also. First Nat. Bank of Los Angeles 
V. Dickson, 6 Dak. 301, 50 N. W. 124. But see United States v. 
Graff, 67 Barb. (N. Y.) 304. 

As to attachable interest of bailee in general, see Wheeler v. 
Train, 3 Pick. (Mass.) 255; Meagher v. Campbell, 32 Misc. Rep. 
426, 33 N. Y. Supp. 700; Megee v. Beirne, 39 Pa. St. 50. 

Right of creditors of depositor to attach or garnish proceeds, see 
post, § 133. , 

132 Hancock v. Colyer, 99 Mass. 187. 

Mere collecting agents are not chargeable as garnishees for the 
amount of uncollected paper, unless it was received as cash, or 
title had passed to them by reason of a purchase, or the giving of 
an absolute credit therefor. Allen v. Erie City Bank, 57 Pa. St. 129, 
136. 

One holding securities of another as an investing agent for him 
is not chargeable in trustee process at the instance of a creditor 
of the principal, such securities being merely choses in action. 
Puller V. Jewett, 37 Vt. 473. 

An attorney holding an unpaid note for collection is not subject 
to process of foreign attachment. Howland v. Spencer, 14 N. H. 580. 

But in Trunkey v. Crosby, 33 Minn. 464, a garnishment of a note 
indorsed to the garnishee for collection and safe keeping was sus- 
tained. ' 

In Wisconsin it has been held that an answer of a bank, sum- 
moned as garnishee, showing that it holds a draft for collection 
for defendant, and that the moneys to be collected on the draft 
are to be "used only for account of" the defendant, and not averring 
that defendant had transferred his title to the draft, shows, prima 
facie, an indebtedness to defendant. John R. Davis Lumber Co. v. 
First Nat. Bank, 90 Wis. 464, 63 N. W. 1018. 
(38) 



Ch. 1] RELATION AND ITS INCIDENTS. § 23 

Where commercial paper has been pledged to a bank 
as collateral for a loan, the interest of the pledgor is 
subject to attachment before the paper has been col- 
lected, as a demand against the person, within the mean- 
ing of the New York Code of Civil Procedure (section 
649). 13=* 

The rule is different in Connecticut, where it has been 
held that unmatured notes in the hands of a bank as 
pledgee are mere choses in action, and not subject to 
the process of foreign attachment.^''* 

§ 23. Lien of bank and right to set-off. 

Analogous to the rule that a bank may apply a general 
deposit in payment of a debt due to it from the depos- 
itor ^^^ is the rule that a bank has a lien on paper de- 
posited for collection by its debtor if the debt has ma- 
tured.^^" 

In discussing the right of the collecting bank to a lien, 
the court, in Muench v. Bank,^^^ says : "The general lien 

133 Warner v. Fourth. Nat. Bank, 115 N. Y. 251, reversing 44 Hun, 
374. 

134 Grosvenor v. Farmers' & Mechanics' Bank, 13 Conn. 104. 

135 Sciuler v. Laclede Bank, 27 Fed. 424; Merchants' & Planters' 
Bank v. Meyer, 56 Ark. 499, 20 S. W. 406; Second Nat. Bank of 
Lafayette v. Hill, 76 Ind. 223, 40 Am. Rep. 239; Knapp v. Gowell, 77 
Iowa, 528, 42 N. W. 434. 

136 Cockrill V. Joyce, 62 Ark. 216, 35 S. W. 221. This is so, though 
the notes were deposited for collection at the reauest of the cashier 
of the bank to enable the bank to make a good showing before the 
bank examiner. Id. 

The collecting bank has a lien on paper of partnership for balance 
due on firm account. Studebaker Bros. Mfg. Co. v. First Nat. Bank 
of Sulphur Springs (Tex. Civ. App.) 42 S. W. 573. Bee, also, Hak- 
man v. Schaaf, 5 Wkly. Law Bui. (Ohio) 851. 

137 11 Mo. App. 144. 

(39) 



g 23 BANK COLLECTIONS. [Ch. 1 

of bankers is part of the law merchant. That bankers 
have a lien on all money and funds of a depositor in 
their possession for the balance of the general account 
is undisputed. A banker's lien does not arise on securi- 
ties deposited with him for a special purpose; other- 
wise, we have no doubt that when a discount has been 
made by the bank, and the note has matured, so as to 
create an indebtedness from the depositor of the bank, 
all funds of the depositor which the bank has at the 
date of the maturity of the discounted note, or which 
it afterwards acquires in the course of business with 
him, may be applied to the discharge of his indebtedness 
to the bank ; and this is true not only of the general de- 
posit of the customer, but the rule applies to any com- 
mercial paper belonging to the depositor in his own 
right, and placed by him with the b£tok for collection." 
But the lien does not attach until some indebtedness is 
actually in existence and matured.^^® In other words, 
actual credit must have been given by the bank on the 
strength of paper actually in its possession.^ ^® The rule 
holds in case the debt matures while the paper is in the 
hands of the bank, uncollected, though it was not ma- 
ture at the time of the deposit for collection.^*" It 
seems, however, that the respective claims of the depos- 
itor and the bank must be capable of liquidation by cal- 
culation.^*! 

138 Gibbons v. Hecox, 105 Mich. 509, 63 N. W. 519; Merchants' Nat. 
Bank V. Ritzinger, 20 111. App. 29; Commercial Nat. Bank v. Proctor, 
98 HI. 558; Zelle v. German Savings Inst., 4 Mo. App. 401. 

"9 Russell V. Hadduck, 8 111. 233 ; Bank of Metropolis v. New Eng- 
land Bank, 1 How. (U. S.) 234. 

140 Gibbons v. Hecox, 105 Mich. 509, 63 N. W. 519. 

141 Gibbons v. Hecox, 105 Mich. 509, 63 N. W. 519. See, also, Giles 
V. Perkins, 9 East, 12. 

(40) 



Ch. 1] RELATION AND ITS INCIDENTS. § 23 

l^lie test generally applied in determining the right to 
a lien is embodied in the rule that a banker has a gen- 
eral lien on paper deposited for collection for a general 
balance, unless the existence of such a lien is inconsist- 
ent with the relation of the parties."" This rule is of 
such general application that the courts take judicial 
notice of it."^ 

The existence of a general balance in favor of the 
bank is to be determined by the nature of the dealings 
and transactions between the parties, rather than by the 
nature of the entries in the books of the bank."* Some- 
times the lien of the bank is in the nature of that of a 
pledgee. Thus, if checks are deposited to cover an over- 
draft, or the amount credited is immediately drawn 
against, the bank may hold the checks until the over- 
drafts are made good.^*^ 

If the paper has been actually pledged to the bank to 
secure an indebtedness, the bank has a lien as pledgee, 
with power to collect, and the proceeds, when collected, 
take the place of the paper, and are subject to the same 
lien."« 

The bank's lien is not only effective against the debtor, 
but follows his property in the hands of his assignee 

1-12 Cockrill V. Joyce, 62 Ark. 216, 35 S. W. 221; Bank of Metropolis 
V. New England Bank, 1 How. (U. S.) 234 (lien as between cor- 
respondent banks) ; Reynes v. Dumont, 130 U. S. 354, 381 ; Wyman 
v.- Colorado Nat. Bank, 5 Colo. 30. 

143 Wyman v. Colorado Nat. Bank, 5 Colo. 30. 

1*4 Amelungs' Syndics v. Bank of United States (La.) 1 Mart. (O. 
S.) 322, 346. 

145 Balbach v. Prelingbuysen, 15 Fed. 675; Titus v. Mechanics' Nat. 
Bank, 35 N. J. Law, 592. 

146 Warner v. Fourth Nat. Bank, 115 N. Y. 251. 

(41) 



§ 23 BANK COLLECTIONS. [Ch. 1 

for creditors, and may be enforced as against such as- 
signee. Thus, a bank to which paper was indorsed for 
collection before the maker thereof assigned for the ben- 
efit of creditors may set off the amount of the paper 
in a suit against it by the assignee to recover the maker's 
deposits in the bank."^ So, too, if the owner of a half 
interest in notes deposited with a bank for collection 
assigns for the benefit of creditors, the bank's lien for 
a general balance against him attaches to his half of 
a dividend declared on the notes by a trustee for the 
creditors of the maker. ^*® 

The lien of the bank on paper deposited for collection, 
for a debt of the depositor to the bank, is not lost by the 
insolvency of the depositor and the execution by him of a 
general assignment for the benefit of creditors, though 
the bank accepted such assignment; if the bank in no 
way consented to a devesting of its lien by such assign- 
ment.i*" 

Where the owners discount notes at a bank for their 
own benefit under a rule of the bank that the discount 
shall be on personal security only, the bank cannot 
claim a lien for a balance of a general account against 
them.iBo 

147 Penn Bank v. Farmers' Deposit Nat. Bank, 130 Pa. St. 209, 20 
Atl. 150. 

14S Greene v. Jackson Bank, 18 R. L 779, citing Lehman v. Tal- 
lassee Mfg. Co., 64 Ala. 567, 595; Central Nat. Bank v. Connecticut 
Mutual Life Ins. Co., 104 tJ. S. 54, 71; Ex parte Pease, 1 Rose, 232. 

"9 Joyce V. Auten, 21 Sup. Ct. 227. See, also, cases in notes 147, 
148, supra. 

150 Amelungs' Syndics v. Bank of United States (La.) 1 Mart. (O. 
S.) 322, 347. The same rule applies with greater force if the dis- 
counting was for the henefit of third persons. Id. 
(42) 



Ch. 2] AUTHORITY OP COLLECTING BANK. § 23 



CHAPTEE ll. 

AUTHORITY OF COLLECTING BANK IN GENERAL. 

§ 24. Bank has implied power to malie collections. 

25. National bank. 

26. General scope and limitations. 

27. Special instructions as to mode of collection. 

28. Authority of bank to sue in its own name. 

29. For possession of paper. 

30. As real party in interest. 

31. Termination of authority to collect. 

32. Insolvency of bank. 

33. Revocation of authority by owner of paper. 

34. Renunciation by bank. 

A bank, whether state or national, has implied power to 
make collections of commercial paper as part of the general 
business of banking. 

The general scope of the bank's authority is as broad as 
the contract, including the general and reasonable usages and 
customs of banks. 

In case there were special agreements or instructions, they 
are to govern. 

In some jurisdictions, the collecting bank may sue in its 
own name, on the paper; in others, it may not. In most cases, 
this depends on whether or not the bank is considered as the 
real party in interest. 

Generally speaking, the authority of the bank terminates 
only on performance of its contract. If it has possession of 
the paper after its dishonor, it may collect it; but if the 
bank becomes insolvent, its authority is at an end. 

The authority of the bank may be revoked by the owner 
prior to actual collection, or by judicial process. It may also 
be renounced by the bank itself. 

' (43) 



§ 24 BANK COLLECTIONS. [Ch. 2 

§ 24. Bank has implied power to make collections. 

The power to receive commercial paper for collection, 
and to collect it, is necessarily implied from, and in- 
cluded in, the power to- do a general banking business.^ 

On this point, the court, in Keyes v. Bank of Hardin,^ 
says : "Admitting the rule to he as claimed by counseL 
that corporations have only such powers as are expressly 
or impliedly given by their charters or acts of incor- 
poration, and yet there can be no doubt as to the neces- 
sary authority in this bank to receive and collect com- 
mercial paper for its patrons. It is not so named nor 
denied in its charter, but is necessarily implied from 
the character of its business. The defendant was or- 
ganized to, and was in the conduct of, a general banking 
business; and within the limits of that business the 
receiving on deposit, and for collection, of commercial 
paper, is, by the common understanding, part and par- 
cel of such business." 

The power of a bank, with general banking powers, to 
collect commercial paper, is seldom questioned in these 
days; but in an early Alabama case, the point was 
raised, and it was held that charter authority to "deal 
in bills of exchange, and discount notes made negotia- 
ble and payable at the bank, with two or more good and 
sufficient sureties," authorizes the taking of bills of 
exchange for collection, as the power to "deal" in bills 
of exchange "necessarily extends to all transactions with 

1 Keyes v. Bank of Hardin, 52 Mo. App. 323, 330; Jookusch v. 
Towsey, 51 Tex. 129, 132; Tyson v. State Bank, 6 Blackf. (Ind.) 225;; 
Yerkes v. National Bank of Port Jervis, 69 N. Y. 382. 

2 Keyes v. Bank of Hardin, 52 Mo. App. 323, 330. 
(M) 



Clh. 2] AUTHORITY OP COLLECTING BANK. § 25 

bills of exchange, which are in themselves lawful, and 
considered by the bank as expedient to enable it to trans- 
. act its business or increase its profits."^ The court also 
intimates, in this case, that a general power to receive 
moneys on deposit authorizes the collection of all kinds 
of commercial jaaper, where the only acts to be per- 
formed are to forward the paper, and demand and re- 
ceive payment. 

Indeed, the exercise by banks of the implied power to 
collect commercial paper is so universal, and such a 
matter of course, that the courts take judicial notice 
that it is a part of the ordinary course of their busi- 
ness.'' 

In any event, if a bank attempts a collection, it can- 
not, in a subsequent suit against it for negligence with 
respect to the collection, set up a want of charter power 
to make a contract to collect commercial paper.^ 

§ 25. National bank. 

Collecting commercial paper being, then, a part of 
regular banking business, a national bank has power to 
make collections, and, in exercising the power, is gov- 
erned by the same rules that govern other banks.^ In 

3 Branch Bank v. Knox, 1 Ala. 148. The restriction as to sureties 
was held to apply only to promissory notes. Id. 

■4 First Nat. Bank of Birmingham v. First Nat. Bank of Newport, 
116 Ala. 520, 22 So. 976. 

3 Tyson v. State Bank, 6 Blackf. (Ind.) 225, 226. 

6 Mound City Paint & Color Co. v. Commercial Nat. Bank, 4 Utah, 

353, 9 Pac. 709; VS^hite v. Third Nat. Bank of Cincinnati, 4 Wkly. 

Law Bui. (Ohio) 791; Yerkes V. National Bank of Port Jervis, 69 N. 

~Y. 382; Exchange Nat. Bank of Pittsburgh v. Third Nat. Bank of 

(45) 



§ 26 BANK COLLECTIONS. [Ch. 2 

the words of the 'Sew York court of appeals : "It has 
never been doubted that they ( national banks ) have the 
right and power to do this kind of business as forming 
a legitimate part of banking business. If included un- 
der any specification of the statute (Eev. St. U. S. § 
5136), it is under that of "Negotiating promissory notes, 
drafts, bills of exchange, and other evidences of debt."^ 

§ 26. General scope and limitations. 

The authority of the collecting bank extends to, and is 
limited by, the scope of the original agreement between 
the parties,* including such customs and usages as may 
properly be said to form part of the contract.^ What- 
ever is necessarily incidental to the effective collection 
of the paper, the bank has implied authority to do. 
Thus, possession of a negotiable instrument, with au- 
thority to collect, confers a right to indorse the instru- 
ment.^" 

This rule, as stated in the new negotiable instruments 
laws, is that an indorsee for collection may transfer his 
right, as such indorsee, where the form of the indorse- 
New York, 112 U. S. 276, 5 Sup. Ct. 141; Merchants' Nat. Bank of 
Philadelphia v. Goodman, 109 Pa. St. 422, 2 Atl. 687. 

■: Yerkes v. National Bank of Port Jervls, 69 N. Y. 382. The 
decision as to this point is probably dictum, for the contested point 
in the case was as to the power of a national bank to contract with . 
a customer to exchange for him nonregistered "United States bonds 
for registered bonds, and it was held that the bank had such power, 
citing Leach v. Hale, 31 Iowa, 69, and Van Leuven v. First Nat. 
Bank of Kingston, 54 N. Y. 671. 

8 Contractual limitation of liability, see post, § 36. 

9 As to customs and usages, see ante, § 10. 

10 Willison v. Smith, 52 Mo. App. 133. 
(46) 



Ch. 2] AUTHORITY OF COLLECTING BANK. § 27 

ment authorizes him to do so.^^ On the same ground of 
necessity and expediency, an indorsement "for deposit" 
by a customer having an account witli tlie banlv, fol- 
lowed by an entry of a credit on tlie pass book, and a 
draft against the deposit, according to long-established 
custom between the bank and the customer, authorizes 
the bank not only to collect the check, but to have it cer- 
tified by the bank on which it was drawn, if that is 
deemed necessary by the collecting bank.^^ But a bank 
which has received paper for collection only has no im- 
plied authority to sell it.^^ 

§ 27. Special instructions as to mode of collection. 

There is an implied contract on the part of a bank re- 
ceiving paper for collection, with specific instructions, 
that it will folloAv such, instructions." It is bound to 

11 Negotiable Instruments Laws: Colorado (Laws 1897, c. 64) § 
37, subd. 3; Connecticut (Laws 1897, c. LXXIV) § 37, subd. 3; Dis- 
trict of Columbia (U. S. Stat, at Large 1897-99, c. 47) § 37, subd. 
3; Florida (Laws 1897, c. 4524, No. 10) § 37, subd. 3; Maryland 
(Laws 1898, u. 119) § 56, subd. 3; Massachusetts (Acts and Resolves 

1898, c. 533) § 37, subd. 3; New York (Laws 1897, c. 612) § 67, 
subd. 3; North Carolina (Pub. Laws 1899, c. 733) § 37, subd. 3; 
North Dakota (Laws 1899, c. 113) § 37, subd. 3; Oregon (Laws 1899, 
p. 18) § 37, subd. 3; Rhode Island (Laws 1899, c. 623, p. 24) § 45, 
subd. 3; Tennessee (Laws 1899, c. 94) § 37, subd. 3; Utah (Laws 

1899, c. 83) § 37, subd. 3; Virginia (Acts Assem. 1897-98, c. 866) § 
37, subd. 3; Washington (Laws 1899, c. CXLIX) § 37, subd. 3; Wis- 
consin (Laws 1899, c. 356, § 1676-7, subd. 3. 

12 National Commercial Bank v. Miller, 77 Ala. 168, 54 Am. Rep. 50. 
"Fuller V. Bennett, 55 Mich. 357, 21 N. W. 433; Russell v. Drum- 

mond, 6 Ind. 216. But see ante, § 18, as to authority of bank under 
indorsement in blank. 
14 Central Georgia Bank v. Cleveland Nat. Bank, 59 Ga. 667. See, 

(47) 



§ 28 BANK COLLECTIONS. [Ch. 2 

follow instructions if, by a reasonable exercise of dili- 
gence, they can be followed.^ ^ Where the instructions 
are ambiguous and reasonably susceptible of two con- 
structions, the bank is not chargeable Avith negligence if, 
in good faith, it adopts and follows either construction.^® 
But the fact that the instructions are ambiguous will 
not justify the bank in disregarding them entirely.^'' 

§ 28. Authority of bank to sue in its own name. 

As to the authority of the collecting bank to sue on 
the paper in its own name, there is a slight conflict of 
authority. On the one hand, it is held that the bank, 
as an indorsee for collection, may sue in its own name.^* 

also, Butts V. Phelps, 90 Mo. 670; First Nat. Bank of Texarkana v. 
Munzeslieimer (Tex. Civ. App.) 26 S. W. 428. 

Special instructions as to renewals, see post, § 45. 

Special instructions as to application of debtor's deposits, see post, 
§ 42. 

Effect of custom, see ante, § 10. 

On effect of custom and usage as abrogating or modifying written 
or printed instructions to an agent, see Mechem, Agency, p. 327, 
note 2; Wanlers v. McCandless, 38 Iowa, 20; D. M. Osborne & Co. 
V. Rider, 62 Wis. 235, 22 N. W. 394; Greenstine v. Borchard, 50 
Mich. 434, 15 N. W. 540; Day v. Holmes, 103 Mass. 306; The Ree- 
side, 2 Sumn. 567, 20 Fed. Cas. 458, No. 11,657. 

1-5 National Bank v. City Bank, 103 V. S. 668, 670. 

16 Oxford Lake Line v. First Nat. Bank of Pensacola, 40 Fla. 349, 
24 So. 480; Mechem, Agency, § 315. See, also. Drown v. Pawtucket 
Bank, 15 Pick. (Mass. 3 88. 

1" Oxford Lake Line v. First Nat. Bank of Pensacola, 40 Fla. 349, 
24 So. 480. 

IS First Nat. Bank of Ft. Collins v. Hughes (Cal.) 46 Pac. 272; 
Cross V. Brown, 19 R. I, 220, 33 Atl. 147; Roberts v. Parrish, 17 
Or. 583, 22 Pac. 136; Wilson v. Tolson, 79 Ga. 137, 3 S. E. 900; 
Roberts y. Snow, 27 Neb. 425, 43 N. W. 241; Chase v Burnham 13 
<48) 



Ch. 2] AUTHORITY OF COLLECTING BANK. § 28 

This is also the doctrine in force in the states that have 
adopted the new negotiable instruments laws. The rule 
established by these laws is very broad, for under them 
a restrictive indorsement confers on the indorsee the 
right to "bring any action respecting the paper that the 
indorser could bring." ^^ 

Where the indorsement is in blank, though the deliv- 
ery was for collection only, the indorsee may sue on the 
paper in his own name,-" and so may one to whom the 

Vt. 447; Simmons v. Belt, 35 Mo. 461; Laplin v. Sherman, 28 111. 
391; King v. Fleece, 7 Heisk. (Tenn.) 273; Edgerton v. Bracket!, 11 
N. H. 218; McCallum v. Driggs, 35 Fla. 277; Moore v. Hall, 48 Mich. 
143. See, also, Baton v. Alger, 47 N. Y. 345. 

Any defenses available against the real owner are available in a 
suit by a bank as collecting agent. Abell Note Brokerage & Bond 
Co. V. Kurd, 85 Iowa, 559, 52 N. W. 488; Cottle v. Cole, 20 Iowa, 
485; Wilson v. Tolson, 79 Ga. 137. 

An allegation that plaintiffs held the paper for collection as an 
accommodation and that there was no ejfpress authority to sue 
on it, negatives their ownership and right to sue. Kampmann v. 
Williams, 70 Tex. 568, 8 S. W. 310. 

19 Negotiable Instruments Laws: Colorado (Laws 1897, c. 64) § 
37, subd. 2; Connecticut (Laws 1897, c. LXXIV) § 37, subd. 2; Dis- 
trict of Columbia (U. S. Stat, at Large 1897-99, c. 47) § 37, subd. 2; 
Florida (Laws 1897, c. 4524, No. 10) § 37, subd. 2; Maryland (Laws 

1898, c. 119) § 56, subd. 2; Massachusetts (Acts and Resolves 1898, 
c. 533) § 37, subd. 2; New York (Laws 1897, c. 612) § 67, subd. 2; 
North Carolina (Pub. Laws, 1899, c. 733) § 37, subd. 2; North Dakota 
(Laws 1899, c. 113) § 37, subd. 2; Oregon (Laws 1899, p. 18) § 37, 
subd. 2; Rhode Island (Laws 1899, c. 623, p. 24) § 45, subd. 2; 
Tennessee (Laws 1899, c. 94) § 37, subd. 2; Utah (Laws 1899, c. 83) 
§ 37, subd. 2; Virginia (Acts Assem. 1897-98, c. 866) § 37, subd. 2; 
Washington (Laws 1899, c. CXLIX) § 37, subd. 2; Wisconsin (Laws 

1899, c. 356) § 1676-1, subd. 2. 

Indorsement for collection is restrictive. See ante, § 17. 

20 Bank of Louisiana v. Stansbury, 4 La. 530 ; French v. Jarvis, 
29 Conn. 347. 

(49) 



§ 28 BANK COLLECTIONS. [(Jh. 2 

paper is delivered for collection without any indorse- 
ment.^^ 

Where a bank, in which a note indorsed in blank is 
deposited for collection, is allowed to retain possession 
nntil after protest, it may sue on the note in its own 
name.^2 It has also been held that a bank holding a 
note and mortgage as trustee for collection for another 
bank may sue to foreclose in its own name.^^ 

The cases denying the right of the bank to sue in its 
own name proceed on the theory that it is no part of 
the duties of a bank with which notes have been depos- 
ited, without auy specific contract specifying distinct 
obligations, to employ counsel ^* and bring suit on the 
notes ;^^ or, in other words, that it is not within the 
scope of the agency of the collecting bank to sue on the 
paper.^'' On this point, the United States circuit court 

21 Sherwood v. Rays, 14 Pick. (Mass.) 172; Little v. O'Brien, 9 
Mass. 423. Contra, see Nichols v. Gross, 26 Ohio St. 425. 

22 Sterling v. Marietta & Susquehanna Trading Co., 11 Serg. & R. 
(Pa.) 179. The bank in this case would, of course, be accountable 

to the depositor for the proceeds recovered. Id. 

23 Lanier v. Nash, 121 U. S. 404, 7 Sup. Ct. 919, 30 L. Ed. 947. 

2* Ryan y. Manufacturers' & Merchants' Bank, 9 Daly (N. Y.) 308. 
And hence the bank is not liable for the false representations of 
its president to the owner of the paper as to the amount of trouble 
and expense the collection ultimately made by such attorney would 
Involve. Id. 

25 Crow V. Mechanics' & Traders' Bank, 12 La. Ann. 692 ; Ryan v. 
Manufacturers' & Merchants' Bank, 9 Daly (N. Y.) 308; Freeman v. 
■Citizens' Nat. Bank, 78 Iowa, 150, 42 N. W. 632. 

26 First Nat. Bank of Bvansvllle v. Fourth Nat. Bank of Louisville, 
56 Fed. 967, 972, 6 C. C. A. 183, 16 U. S. App. 1; First Nat. Bank of 
Ft. Worth V. Payne (Ky.) 42 S. W. 736; Crow v. Mechanics' & Trad- 
ers' Bank, 12 La. Ann. 692; Wetherill v. Bank of Pennsylvania, 1 
Miles (Pa.) 399; Ryan v. Manufacturers' & Merchants' Bank 9 Daly 
(N. Y.) 308. 

(50) 



Ch. 2] AUTHORITY OF COLLECTING BANK. § 29 

of appeals for the sixth circuit, after stating and ap- 
proving the general rule that such a suit is not within 
the scope of the agency of the bank, says : "It may be, 
however, that under special circiimstances, as where de- 
lay to bring suit — the collecting bank being the indorsee 
— would operate to discharge a surety, and there was 
not time to wait for advices from the owner of the pa- 
per, or where an immediate attachment was necessary 
to prevent the fraudulent removal or disposition of his 
property by the debtor to avoid payment, it would be the 
duty of the collecting bank to bring suit."^^ 

§ 29. For possession of paper. 

Since, however, the bank, as bailee, is entitled to pos- 
session for the purposes of collection, it ought, logic- 
ally, to have the right to sue in its own name to enforce 
such right at least. So it has been held that a bank to 
which a draft with collaterals is delivered by the payee 
for collection has such a special interest in the paper, 
that it may recover possession from the receiver of a cor- 
respondent bank, to which it sent the paper for collec- 
tion prior to its suspension.^* 

It has also been held that where the bank which is- 
sued a certificate of deposit refused, on receiving the 
same from a collecting bank, either to pay it or to sur- 
render it, the collecting bank may maintain an action 
for possession of the certificate, since it, in turn, is ac- 

2T First Nat. Bank of Evansville v. Fourth Nat. Bank of Louisville, 
56 Fed. 967, 972, 6 C. C. A. 183, 16 U. S. App. 1. 

28 Corn Exchange Bank of Chicago v. Blye (1886) 2 N. Y. St. 
Rep. 112. 

151) 



§ 30 BANK UOLLECTl^ONS. [Ch. 2 

countable to its principal either for the certificate itself, 
or for the amount thereof.^^ 

§ 30. As real party in interest. 

An indorsee for collection is the "real party in in- 
terest," within the meaning of the statutes of Iowa, re- 
quiring every action to he prosecuted in the name of 
such party ;^° the doctrine there being that one "hold- 
ing the legal title of a note or instrument may sue on 
it, though he be an agent or trustee, and liable to ac- 
count to another for the proceeds of the recovery.''^^ 
But in Indiana and ^Minnesota, the principal is the real 
party in interest, within the meaning of a like statute, 
and the agent cannot sue in his own name.^^ 

In denying the right of a bank to sue in its own name 
on paper indorsed to it "for collection," the supreme 
court of Minnesota says : "It was held, in some cases, 
that the beneficial owner of a negotiable bill or note, 
payable to bearer, or indorsed in blank, might institute 
suit on it in the name of any one who would allow his 
name to be used for that purpose, and that, unless the 
maker had a defense to the note, good against the real 

29 People's State Bank v. St. Landry State Bank, 50 La. Ann. 528, 
24 So. 14. The collecting bank in this case having brought suit for 
payment or return of the certificate, the court held an exception 
to . the cause of action as an entirety, untenable, in view of the 
fact that the action was maintainable for the recovery of posses- 
sion of the paper. Id. 

30 Abell Note Brokerage & Bond Co. v. Hurd, 85 Iowa, 559, 52 N. 
W. 488; Cottle v. Cole, 20 Iowa, 485. 

31 Cottle V. Cole, 20 Iowa, 485. 

32 Black V. Enterprise Ins. Co., 33 Ind. 223 ; Rock County Nat. 
Bank of Janesville v. Hollister, 21 Minn. 385. 

(52) 



Ch. 2] AUTHORITY OF COLLECTING BANK. § 21 

owner, he could not be permitted to show that the plain- 
tiff was not the real party in interest.^^ Although this 
rule might be correct at common law, it certainly is not 
good under the statute of this state, which provides that 
'every action shall be prosecuted in the name of the real 
party in interest.' Gen. St. c. 66, § 26. To this there 
are exceptions made by section 28 ; but the case of this 
indorsement would not come within them. * * * The 
relation of the indorser and indorsee is that of principal 
and agent ; the agent cannot be the 'real party in inter- 
est' in a suit brought on the note."^* 

In New York, an ordinary agent for collection is not 
the real party in interest,^^ but becomes such, and hence 
entitled to sue in his own name if he is to collect at 
his own expense, and retain a portion of the proceeds.** 

§ 31. Termination of authority to collect. 

In the absence of specific instructions, the authority 
of the collecting bank continues up to the time of the 
completion of the collection, and the remittance and re- 
ceipt of the proceeds. We shall see later, however, that, 
if the paper is dishonored, the bank, unless otherwise 
instructed, should take the proper steps to charge the 
parties, and immediately return the paper to the own- 
er.*'^ But if the bank retains possession of the paper 

33 Citing Morton v. Rogers, 14 Wend. (N. Y.) 575; Lowell v. Evert- 
son, 11 Johns. (N. Y.) 52; Conroy v. Warren, 3 Johns. Cas. (N. Y.) 
259, 264. 

34 Rock County Nat. Bank of Janesville v. Hollister, 21 Minn. 385. 

35 Bell V. Tllden, 16 Hun (N. Y.) 346; Killmore v. Culver, 24 Barb. 
(N. Y.) 656. 

36 Eaton V. Alger, 47 N. Y. 345. 
3T See post, § 74. 

(53) 



§ 33 BANK COLLECTIONS. [Oh. 2 

after dishonor, its authority continues as long as the 
paper remains at the bank; and the debtor may safely 
pay the amount thereof to the banlc if he has no notice 
that the bank no longer has any authority to receive 
payment.^* 

§ 32. Insolvency of bank. 

The insolvency of the collecting bank at once termi- 
nates its authority to collect, or to proceed further with 
the collect] on.^^ Insolvency of the bank, known to its 
officers at the time the paper is received for collection, 
negatives any authority to collect, from the very incep- 
tion of the relation.*** 

§ 33. Revocation of authority by owner of paper. 

As a general rule, the owner may revoke the author- 
ity given the collecting bank at any time prior to col- 
lection, unless the bank, in the usual course of business, 
has obtained title to, or a lien on, the paper.*^ So, at 
any time before a depositor of paper for collection has 
drawn against it, he may revoke the so-called agency, 

3s Alley V. Rogers, 19 Grat. (Va.) 366, 383; Sterling v. Marietta & 
Susquehanna Trading Co., 11 Serg. & R. (Pa.) 179. 

39jockuscli V. Towsey, 51 Tex. 129; Bank of Clarke County v. 
Oilman, 81 Hun, 486, 30 N. Y. Supp. 1111, affirmed in 152 N. Y. 634; 
Audenried v. Betteley, 8 Allen (Mass.) 302; Manufacturers' Nat. 
Bank v. Continental Bank, 148 Mass. 553, 20 N. E. 193, 12 Am. St. 
Rep. 598, 2 L. R. A. 699; First Nat. Bank of Meridian v. Strauss, 66 
Miss. 479, 6 So. 232. See, also, First Nat. Bank of Crown Point v. 
First Nat. Bank of Richmond, 76 Ind. 561, 40 Am. Rep. 261. 

40 Richardson v. Denegre, 93 Fed. 572, and cases cited under sec- 
tion 12, ante. 

4iBalbach v. Frelinghuysen, 15 Fed. 675, 684. 
(54) 



Ch. 2] AUTHORITY OF COLLECTING BANK. § 34 

and reclaim the deposit;^- but he cannot revoke the 
authority, and reclaim the paper after the amount has 
been credited to him on the books of the bank, and he 
is consequently at^liberty to draw on the fund in ac- 
cordance with the bank's usual mode of dealing.*^ This 
is, of course, on the theory that in such case title has 
passed to the bank.** If the paper has been expressly 
indorsed for collection, the indorsement itself- may be 
canceled at any time before the pajser is actually de- 
livered over or transmitted for collection.*^ The au- 
thority of the banlf may be revoked, and the paper with- 
drawn from it, after it has actually entered on the pro- 
cess of collection, if it fails to take proper steps to insure 
collection.*^ 

The authority to collect may also be revoked by judi- 
cial process. Thus, where a depositor obtains an in- 
junction against the bank with which he has left a check 
for collection, and against the clearing house, restrain- 
ing them from passing the check, the so-called agency 
of the collecting ,bank is revoked.*'^ 

§ 34, Renunciation by bank. 

The bank itself may renounce its authority to collect- 
Its authority as to a particular item is renounced by 
an account stated between the bank and the customer, 

42 Louisiana Ice Co. v. State Nat. Bank of New Orleans, 1 McGIoln 
(La.) 181. 
is Plannery v. Coates, 80 Mo. 444. 

44 See ante, § 13, 

45 People's Bank of Lewisburg v. Jefferson County Sav. Bank, 106 
Ala. 624, 17 So. 728. See, also, "Watervliet Bank v. White, 1 Denio 
(N. Y.) 608, 612; Manhattan Co. v. Reynolds, 2 Hill (N. Y.) 140. 

*o Bank of Mobile v. Huggins, 3 Ala. 206, 221. 

4T Louisiana Ice Co. v. State Nat. Bank of New Orleans, 1 Mc- 

(55) 



§ 34 BANK COLLECTIONS. [Ch. 2 

wherein the item is charged back to the latter ; and the 
renunciation will be considered to have been accepted 
if no objection thereto is made within a reasonable 
time.** The bank may also be considered as haying re- 
nounced its authority where, after dishonor, it has re- 
turned the paper to the owner, thereby admitting its 
inability to effect collection.*^ 

Gloin (La.) 181. Any person who Is aware of the issuing of 
the injunction is charged with notice of the revocation of the 
agency. Id. 

48 First Nat. Bank of Evansville v. Fourth Nat. Bank of Louisville, 
56 Fed. 967, 973, 6 C. C. A. 183, 16 U. S. App. 1. 

*9 See post, § 74. 

(56) 



Ch. 3] DUTIES AND DEFAULTS. 



CHAPTER III. 

DUTIES AND LIABILITIES OP COLLECTING BANK IN 
GENERAL. 

§ 35. Degree of care required of bank. 

36. Contractual limitation of liability. 

37. Representation of bank by casbier. 

SS. Defaults of depositor — Bank not liable. 

39. Liability for loss of paper — Negligence presumed from 

loss. 

40. Failure to make inquiry and give notice within rea- 
sonable time. 

41. Surrender of bills of lading accompanying drafts for price 

of goods. 

42. Application of deposits to payment of depositor's paper 

held for collection. 

43. Check or draft not an assignment of fund. 

44. Time and manner of receiving payment. 

45. Extensions and renewals. 

46. Medium of payment — As general rule, bank can take 

money only. 

47. Checks on other banks. 

48. Claims against collecting bank — Certificates of de- 
posit. 

49. Same — Checks on collecting bank. 

50. Collecting bank also a creditor of obligor — Cannot obtain 

preference — Exceptions. 

51. Collection of interest. 

52. Liability of collecting bank for depreciation. 

53. Liability of collecting bank as general Indorser. 

54. Duties as to paper sent to a correspondent — Forwarding 

instructions and information. 

55. Fraud and mistake. 

56. Negligence a question of fact — Province of court and jury. 

57. Waiver of negligence of collecting bank. 

(57) 



BANK COLLECTIONS. [Qh. 3 

A bank must use ordinary care in making collections. 

As to contractual limitation of liability, the better rule is 
that the bank cannot contract against liability for its own 
negligence, though it may contract against liability for neg- 
ligence of its agents or correspondents. If the rules and 
customs of the bank have been brought home to the custom- 
ers, they may limit the liability of the bank to their terms 
and conditions. 

The cashier represents the bank in making collections, and 
it is bound by his acts and representations within the scope 
of his duties. 

The bank is not liable for any loss directly traceable to a 
default of the depositor, in failing to give sufficient informa- 
tion, etc. 

Negligence on the part of the bank is presumed from the 
loss of the paper itself after delivery for collection. This pre- 
sumption may be rebutted by proof of special exonerating 
circumstances; but if the bank, after loss of the paper, fails 
to make due and timely inquiry, it is liable. 

Where bills of lading accompany time drafts sent for col- 
lection, the bank may surrender the bills on acceptance of 
the drafts; but in case of sight drafts, the bank must hold 
the bills of lading until payment of the drafts. This rule 
may, however, be modified by special instructions. 

The weight of authority denies to a bank at which paper 
is made payable any right to apply a deposit of the obligor 
to payment thereof without special instructions to that ef- 
fect. The rule is different where the paper is made nego- 
tiable and payable at the bank. This rule is in harmony with 
the rule that a check or draft is not an assignment of the 
fund on which it is drawn. 

The bank usually receives payment at maturity, but may 
accept it before maturity in special cases. It may also ac- 
cept payment after dishonor if it still has the paper. It can- 
not accept partial payment or grant extensions or renewals 
without special authority. 

As a general rule, the bank can accept money only in pay- 

(58) 



Oh. 3] ' DUTIES AND DEFAULTS. § 35 

ment. If it takes a check in payment, it does so at its own 
risk; but if the taking of checks be justified by general cus- 
tom, the bank will be protected in some jurisdictions; in 
others it is held that such a custom is unreasonable and 
against public policy. 

The bank cannot take in payment a claim against itself in 
the shape of a certificate of deposit or a check on itself. But 
here, again, the bank may be justified by general custom. 

If the bank is also a creditor of the obligor on the paper, 
it cannot, except in exceptional ' cases, secure its own claim, 
to the prejudice of the claim of its customer. It should either 
decline the collection or deal fairly with the customer and give 
him preference. , 

There is some conflict of authority as to the liability of the 
bank on its general indorsement of paper indorsed to it re- 
strictively, for collection. In some jurisdictions, including 
those where the new negotiable instruments laws are in force, 
the bank is liable in such case as a general indorser; in other 
jurisdictions it is not liable as general indorser. 

If the paper be sent to a correspondent, the bank should 
forward to the correspondent any and all special instructions 
and necessary information. 

Negligence of the bank is usually a question of fact for the 
jury, but is a question of law for the court if the facts are 
undisputed. 

The negligence of the bank may be waived or ratified, but 
full knowledge of all the essential facts is requisite to an ef- 
fectual waiver or ratification. 



§ 35. Degree of care required of bank. 

The degree of care required in the case of any other 
bailment for hire governs the duties and liabilities of a 
collecting bank; and therefore, in collecting paper de- 
livered for that purpose, it must use ordinary care and 

(59) 



§ 36 BANK COLLBCTIONS. [Qh. S 

diligence.^ What constitutes ordinary care depends for 
the most part on the circumstances of each case;^ but 
there are some rules governing duties common to all col- 
lections, and of these we shall treat in the succeeding 
sections of this chapter, and in the following chapter. 

§ 36. Contractual limitation of liability. 

Eeasoning by analogy from the rules rendering a stip- 
ulation by a common carrier against liability for its 
own negligence void as against public policy,^ and the 
rules rendering like stipulations by a master void for 
the same reason,* it would seem that a bank ought not 
to be permitted to contract against liability for its neg- 
ligence. But the rule is otherwise in Illinois at least, 
where it has been held that a bank has a right to stipu- 
late against the ordinary liabilities of the business of 
collecting paper.^ The decision more in detail is that 
where the initial bank undertakes a collection only on 

1 Sahlien v. Bank of Lonoke, 90 Tenn. 221, 16 S. W. 373 ; Mer- 
chants' & Manufacturers' Bank v. Stafford Nat. Bank, 44 Conn. 565; 
Yerkes v. National Bank of Port Jervis, 69 N. Y. 382, 386; First Nat. 
Bank of Birmingham v. First Nat. Bank of Newport, 116 Ala. 520, 
22 So. 976; Young v. Noble's Ex'rs, 2 Disn. (Ohio) 487. 

Degree of care required of a merchant or other nonbanker at- 
tempting a collection, see Young v. Noble's Ex'rs, 2 Disn. (Ohio) 
485; DVas v. Hanson, 14 Mo. App. 363. 

2 See post, §§ 56, 58. 

3 Louisville & Nashville R. Co. v. Grant, 99 Ala. 325, 13 So. 599; 
Same v. Dies, 91 Tenn. 177, 18 S. W. 266; St. Joseph & G. L R. 
Co. V. Palmer, 38 Neb. 463, 56 N. W. 957; Union Pacific Ry. Co. v. 
Rainey, 19 Colo. 225, 34 Pac. 986. 

4 Richmond & Danville R. Co. v. Jones. 92 Ala. 218, 9 So. 276; 
Runt v. Herring, 2 Misc. Rep. 105, 21 N. Y. Supp. 244. 

5 Fay V. Strawn, 32 111. 295. 

(60) 



Ch. 3] DUTIES AND DEFAULTS. § 36 

condition that it shall incur no liability, and that the 
money, when paid to their correspondent at the place 
of payment, shall be sent to the initial bank by express, 
and the express package, on receipt, shall be turned 
over to the owner, the initial bank is not liable for the 
proceeds in case the correspondent fails after collecting, 
but before remitting, though the correspondent had, by 
mistake, and contrary to instructions, passed the amount 
received to the credit of the initial bank.^ 

Special instructions to take particularly designated 
steps in making the collection will not be construed to 
limit the liability of the bank to the taking of such 
steps only, and so a direction to the collecting bank to 
protest in case of nonpayment does not constitute a 
special contract with the bank limiting its liability and 
duty to merely that of a special agent, with authority 
to employ a notary for the performance of the duties in- 
cident to protest, but requires the bank to take all the 
steps necessary to charge all parties liable on the pa- 
perJ 

The collecting bank may, however, contract against 
liability for the negligence of its correspondents. This 
right is recognized in those cases where the bank merely 
contracts to transmit to a suitable correspondent.* But 
such a limitation will not excuse the bank from its own 
negligence in not selecting a proper correspondent.^ 

6 Fay V. Strawn, 32 111. 295. 

TAyrault v. Pacific Bank, 47 N. Y. 570, 575, affirming 29 N. Y. 
Super. Ct. 337; Coddington v. Davis, 1 Gomst. (N. Y.) 186. 

8 See post, §§ 99-115. See, also, Fay v. Strawn, 32 111. 295. 

Minneapolis Sash & Door Co. v. Metropolitan Bank, 76 Minn. 
136, 44 L. R. A. 504. 

(61) 



§ 37 BANK COLLrBCTIONS. [Qh. 3 

How far the rules of the bank and notices posted in the 
bank or printed on its stationery limit its liability de- 
pends on whether they have been brought home to the 
customer in such manner that they form a part of the 
contract in the particular case. If they do form part 
of the contract, the depositor is, of course, bound by 
them.io 

§ 37. Representation of bank by cashier. 

The collecting bank is bound by the acts of its cash- 
ier in the ordinary course of business, as he is the gen- 
eral executive officer of the bank, and the public at 
large "usually have no other knowledge of the powers 
of the cashier of a particular bank than such as is de- 
rived from the usage and practice of banks in general ; 
and, even though his powers may be expressly limited 
by the directors, such limitation will not affect those 
to whom it is unknown, if the transaction was one with- 
in the scope of the ordinary course of business of bank- 
ing institutions,"^^ Hence a bank is bound by the cash- 
ier's receipt fo;.' paper received for collection,^^ and is 
•estopped to repudiate representations made by him that 

10 Pendleton v. Bank of Kentucky, 1 T. B. Mon. (Ky.) 171, 182; 
Wingate v. Mechanics' Bank, 10 Pa. St. 104. See, also. Heath v. 
Portsmouth Sav. Bank, 46 N. H. 78; Schoenwald v. Metropolitan 
Sav. Bank, 57 N. Y. 418. 

11 First Nat. Bank of Birmingham v. First Nat. Bank of Newport, 
116 Ala. 520, 22 So. 976; Merchants' Bank v. State Bank, 10 Wall. 
(U. S.) 604, 650, and cases cited in notes; Warren v. Oilman, 17 Me. 
360. 

Paying teller not authorized to receive deposit to take up note 
lield for collection, see post, § 42. 

12 See ante, § 8. 

<62) 



Ch. 3] DUTIES AND DEFAULTS. | 38 

certain paper would be held by the bank for collection, 
where it received the benefits of the transaction.^^ But 
if the paper was delivered to the cashier in his individ- 
ual capacity, and the proceeds were placed to his credit 
in the bank, and used by him, the bank is not liable.^* 

§ 38. Defaults of depositor — Bank not liable. 

The bank cannot properly be charged with negligence 
if the owner fails to inform it of material facts, or gives 
■erroneous addresses of the parties, or fails to observe 
known rules of the bank, and any one of such defaults 
is the proximate cause of the resulting loss. Under this 
rule, the failure of the depositor for collection to im- 
part to the bank his knowledge of the insolvency of the 
obligor, and the worthlessness of the paper, will pre 
vent a recovery against the bank, as such failure is a 
fraud on the bank.^^ And a bank receiving for collec- 
tion a note payable at the "Bank of Kent, Kent, N. Y.," 
without other information as to the postofflce address 
■of that bank, performs its whole duty by sending it to 
the address indicated, and is not liable if the note fails 
to reach the bank of Kent.^" 

Where the rules of the collecting bank require the 
■depositor to deposit, in advance, the costs of protest, he 
cannot hold the bank liable for neglecting to protest, if 
he fails to deposit such costs in advance.^ '^ This hold- 

13 See ante, § 9. 

14 McLennan v. Bank of California, 87 Cal. 569, 25 Pac. 760. 

15 Peterson v. Union Nat. Bank, 52 Pa. St. 206; County of Middle- 
isex V. State Bank, 32 N. J. Bq. 467. 

10 Chapman v. Union Bank, 32 How. Pr. (N. Y.) 95. 

IT Pendleton v. Bank of Kentucky, 1 T. B. Mon. (Ky.) 171, 182. 

(63) 



§ 39 BANK COLLECTIONS. [Ch. 3 

ing, of course, is based on the supposition that the rules 
of the bank are taken as fixing the extent of its engage- 
ment to collect. 

§ 39. Liability for loss of paper — Negligence presumed from 
loss. 

It sometimes happens that paper delivered to a bank 
for collection is lost, either in the bank or in the mails, 
during the course of its transmission by the bank. For 
the rules governing the liability of the bank in such 
cases, we again have recourse to the general rules ap- 
plicable to bailments. Thus, a recent Alabama case lays 
down the doctrine that the loss of paper by a bank to 
which it was delivered for collection is presumed to be 
the result of negligence of the bank, as "it is a general 
rule that in actions against a bailee for failure to re- 
deliver the propertjr bailed, if the proof shows such fail- 
ure, prima facie negligence will be imputed to the 
bailee."" This is also the doctrine of the United States 
supreme court, which has held that negligence on the 
part of the collecting bank is presumed from the fact 
that paper sent there for collection was lost after having 
been actually in the bank.^'' If the fact of the loss 
be capable of explanation, the facts are so within the 

18 First Nat. Bank of Birmingham v. First Nat. Bank of Newport, 
116 Ala. 520, 22 So. 976, and cases cited. 

Waiver of negligence of bank, see post, §§ 57, 76. 
Measure of damages, see post, § 180. 

19 Chicopee Bank v. Philadelphia Bank, 8 Wall. (U. S.) 641, 19 L. 
Ed. 422. But see Davis v. First Nat. Bank of Fresno, 118 Cal. 600, 
50 Pac. 666. 

(64) 



Ch. 3] DUTIES AND DEFAULTS. § 39 

peculiar knowledge of the officers of the bank that the 
burden of proof rests on it to show due diligence.^" 

In a case Avhere the lower court had instructed the 
jury that, if the note was lost by defendant, and de- 
fendant does not shoAV under what circumstances it was 
lost, it is presumed that it was lost by carelessness, the 
reviewing court said : "When a party is intrusted with 
property, and is unable to account for it except by prov- 
ing that it has been lost, and can show no circumstances 
attending its loss, — if not a legal presumption of care- 
lessness, it is of that strong character that the court 
would not be inclined to reverse a judgment for giving 
such an instruction, even if it were not a legal conclu- 
sion. It is so strong that such an instruction could not 
mislead the jury by informing them that it created a 
legal presumption."^^ 

It seems, however, that if the collecting bank sends 
the paper, not for the purpose of collection, but for a 
special purpose consistent with a due regard for the 
rights of the owner, the rule is different. Thus, where 
the defendant bank sent a draft to the drawee bank 
merely for identification of the signature of the drawer, 
and the draft was there lost, it was held to have been 
error to charge generally that a prima facie case of neg- 
ligence was made out if defendant failed to return the 
draft or its proceeds, but that the court should have 
charged as to what facts would constitute negligence, 
under the peculiar circumstances of the case.^^ But 

20 Chicopee Bank v. Philadelphia Bank, 8 Wall. (U. S.) 641, 19 
L. Bd. 422. 

21 American Express Co. v. Parsons, 44 111. 312, 318. 

22 Davis V. First Nat. Bank of Fresno, 118 Cal. 600, 50 Pac. 666. 

(05) 



§ 40 BANK UOLLBJCTIONS. [Ch. 3 

where a bank either lost a note sent to it for collection, 
or, by its negligence, permitted the note to get into the 
hands of an unauthorized person, who collected it, it is 
liable to the owner for the amount thereof, as a collect- 
ing bank must either return the note or account 'for its 
proceeds.^^ 

The presumption of negligence from the loss of paper 
after its receipt for collection may, of course, be rebut- 
ted by a showing of facts consistent with the exercise 
of due care.^* 

§ 40. Failure to make inquiry and give notice within 

reasonable time. 

The bank may render itself liable by a failure to make 
due inquiry for the paper within a reasonable time. So, 
where it forwarded by mail a check which, in due course, 
would have reached the correspondent the next day, but 
failed to discover that it was lost, and to notify the 
principal of that fact, for fourteen days after mailing 
it, during which time the drawee became insolvent, it 
is liable for the loss sustained.^^ So, also, failure of the 
collecting bank to make any inquiry as to a sight draft 
mailed by it on the day of its receipt, and lost in the 

• 23 McClure v. D. M. Osborne & Co., 86 111. App. 465. 

2i Chicopee Bank v. Philadelphia Bank, 8 Wall. (U. S.) 641, 650, 
19 L. Ed. 422; Davis v. First Nat. Bank of Fresno, 118 Cal. 600, 
50 Pac. 666. See, also, Chapman v. Union Bank, 32 How. Pr. (N. 
Y.) 95; Day V. Riddley, 16 Vt. 48; Dawson v. Chamney, 5 Q. B. 164. 

Wliere the collecting agent forwards a note to a foreign port, for 
collection, by the regular government mail, with the knowledge and 
assent of the owner, such agent is not liable for its loss in trans- 
mission. Jacobsohn v. Belmont, 20 N. Y. Super. Ct. 14. 

25 Shipsey v. Bowery Nat. Bank, 59 N. Y. 485, reversing 36 N. 
Y. Super. Ct. 501. 

(66) 



Ch. 3] DUTIES AND DEFAULTS. § 41 

mails, or to notify the owner of its nonpayment, for 
one month after the draft was mailed, renders it liable 
for the full amount in case of the insolvency of the 
drawee before the expiration of such time.^^ 

S 41. Surrender of bills of lading accompanying drafts for 
price of goods. 

Drafts for the price of goods, when delivered to a bank 
for collection, are usually accompanied by the bills of 
lading. Whether the bank should surrender the bills of 
lading on the mere acceptance of the drafts, or should 
hold them until actual payment of the drafts, is a ques- 
tion that arises frequently, and is made to depend on 
whether the drafts are "sight" or "time" drafts. The 
general rule, deducible from the decisions, and sustained ' 
by the great weight of authority, is that, in the absence 
of instructions to the contrary, a bill of lading of mer- 
chandise deliverable to order, when attached to a time 
draft, and forwarded with the draft to a bank for collec- 
tion, may be surrendered to the drawee on his acceptance 
of the draft, and that the bank is not required to hold 
the bill until actual payment of the draft.^''^ 

26 First Nat. Bank of Trinidad v. First Nat. Bank of Denver, 4 
Dill. 290, Fed. Cas. No. 4,810. 

2» National Bank of Commerce of Boston v. Merchants' Nat. Bank 
of Memphis, 91 U. S. 92, 23 L. Ed. 208; Woolen v. New York & Erie 
Bank, 12 BlatcM. 359, Fed. Cas. No. 18,026; Lanfear v. Biossman, 1 
La. Ann. 148; Moore v. Louisiana Nat. Bank, 44 La. Ann. 99, 10 
So. 407, 32 Am. St. Rep. 332; Schuchardt v. Hall, 36 Md. 590; 
Second Nat. Bank of Columbia v. Cummings, 89 Tenn. 609, 18 S. 
W. 115; Commercial Bank of Manitoba v. Chicago, St. P. & K. C. 
Ry. Co., 160 111. 401, 43 N. B. 756, affirming 58 111. App. 438; Oxford 
Lake Line v. First Nat. Bank of Pensacola, 40 Fla. 349, 24 So. 480; 

(6Y) 



§ 41 BANK COLLEX^TIONS. [Ch. 3 

The court in the leading case decided in the United 
States supreme court says, as to a time draft: "The 
acceptance is not asked on the credit of the drawer of 
the draft, but on the faitli of the consignment. The 
drawee is not asked to accept on the mere assurance that 
the drawer will, at a future day, deliver the goods to 
reimburse the advances. He is asked to accept in re- 
liance on a security in hand. To refuse him that se- 
curity is to deny him the basis of his requested accept- 
ance. It is remitting him to the personal credit of the 
drawer alone. An agent for collection having the draft 
and attached bill of lading cannot be permitted, by de- 
clining to surrender the bill of lading on the acceptance 
of the bill, to disappoint the obvious intentions of the 
parties, and deny to the acceptor a substantial right 
which by his contract is assured to him.""* But if the 
bills accompanying a time draft are taken to the order 
of the consignors, and are by them indorsed to the cash- 
ier of the bank through Avhich they are to be transmitted 
for collection, these facts rebut the presumption (aris- 
ing from the fact that the paper Avas a time draft) that 
there was a sale on credit, and show an intent that the 

Wisconsin Marine & Fire Ins. Co. v. Bank of British North America, 
21 Upper Can. Q. B. 284, affirmed in 2 Upper Can. B. & A. Rep. 
282; Clark v. Bank of Montreal, 13 Grant's Ch. 211; Shepherd v. 
Harrison, L. R. 4 Q. B. 493, L. R. 5 H. L. 133; Coventry v. Glad- 
stone, L. R. 4 Eq. 493. 
Waiver of negligence of bank, see post, § 57. 

2S National Bank of Commerce of Boston v. Merchants' Nat. Bank 
of Memphis, 91 U. S. 92, 23 L. Ed. 208. The court in this case 
distinguishes Gilbert v. Guignon, 8 Ch. App. 16, Seymour v. New- 
ton, 105 Mass. 272, Newcomb v. Boston & Lowell Railroad Corp., 115 
Mass. 230, and Stollenwerck v. Thatcher, 115 Mass. 224. 
(68) 



Ch. 3] DUTIES AND DEFAULTS. § 41 

bills of lading be held as security until payment of the 
draft.^^ On this point, the supreme court of the United 
States said : "These bills of lading, unexplained, are al- 
most conclusive evidence of an intention to reserve to 
the shipper the jus disponendi, and prevent the property 
in the wheat from passing to the drawees of the 
drafts." 30 

The rule as to sight drafts is that the bank must hold 
the accompanying bills of lading until actual payment 
of the drafts.^^ If specific instructions as to the holding 
of the bills of lading accompany them and the drafts, 
the bank must follow the instructions strictly. Hence 
a bank receiving for collection time drafts with bills of 
lading, accompanied by specific instructions for delivery 
of the bills of lading only on payment of the drafts, can- 
not divest its principal of ownership of the goods by de- 
livering the bills of lading prior to payment, contrary to 
instructions.^^ But express instructions to the col- 

29 Second Nat. Bank of Columtiia v. Cummings, 89 Tenn. 609 ; 
Dows V. National Exchange Bank of Milwaukee, 91 U. S. 631; Se- 
curity Bank of Minnesota v. Luttgen, 29 Minn. 366; Benjamin, Sales 
(Corbin Ed.) § 565. 

In the Minnesota case above cited, there was evidence of a special 
parol agreement that the bills should not be delivered until pay- 
ment of the drafts, but the court holds the above doctrine inde- 
pendently of such evidence. 

30 Dows V. National Exchange Bank of Milwaukee, 91 U. S. 631. 

31 Second Nat. Bank of Columbia v. Cummings, 89 Tenn. 609 ; 
National Bank of Commerce of Boston v. Merchants' Nat. Bank 
of Memphis, 91 U. S. 92, 23 L. Ed. 208. See, also, cases cited in 
note 27, supra. 

32 Dows V. National Exchange Bank of Milwaukee, 91 U. S. 618; 
Dows V. Wisconsin Marine & Fire Ins. Co., 91 U. S. 637; Stollen- 
werck v. Thatcher, 115 Mass. 224. 

(69) 



§ 41 BANK COLLECTIONS. [Ch. 3 

lecting bank to "deliver" certain papers accompanying 
a draft only on payment of the draft are not violated by 
the bank by simply allowing the drawee to open the 
package containing the papers, and to examine them be- 
fore payment of the draft ; such a temporary and quali- 
fied possession not being a "delivery."^* Where the in- 
structions are ambiguous, the bank must nevertheless 
use ordinary' business judgment as to the course it will 
pursue. So, where two drafts, one at sight and the 
other on time, were sent to a bank for collection and 
remittance, with special instructions to procure accept- 
ance of the time draft, and deliver the bill of lading- 
accompanying the drafts "only on payment of the 
drafts," the bank is liable for any damages caused by its 
delivery of the bill of lading on payment of the sight 
draft, but without procuring an acceptance of the time 
draft, though the bank, in good faith, believed that it 
was acting for the best interests of the principal.^* 

By a wrongful surrender of the bills of lading, 
amounting in fact to a delivery of the goods, before pay- 
ment of the drafts, the bank makes itself liable for con- 
version of the goods.^^ 

33 People's Nat. Bank v. Freeman's Nat. Bank, 169 Mass. 129, 
47 N. E. 588, and cases cited. 

3* Oxford Lake Line v. First Nat. Bank of Pensacola, 40 Fla. 
349, 24 So. 480, and authorities cited. 

Waiver of negligence of bank, see post, § 57. 

35Hobbs V. Chicago Packing & Provision Co., 98 Ga. 576, 25 S. 
B. 584. The bank in this case having been a partnership, and 
delivery of the bills of lading having been made by one partner 
only, without the knowledge of the other, it was held that the act 
was within the scope of the partnership business, and that both 
were individually liable. Id. It does not appear in this case 
whether the drafts were "time" or "sight" drafts. 
(70) 



Ch. 3] DUTIES AND DEFAULTS. § 43 

If the bank discounts the draft, it is entitled to hold 
the bill of lading as security for the acceptance and 
payment of the draft,^" and has sufficient title to the 
draft to enable it to 'enforce its claim against the goods 
in case the draft is dishonored by the consignee, as 
against other creditors of the drawer, though its usual 
custom was to charge back the amount of unpaid 
drafts.^'' 

§ 42. Application of deposits to payment of depositor's paper 
held for collection. 

The rule adopted by the decided Aveight of authority 
is that a bank at which negotiable paper is made pay- 
able has no authority, by reason of that fact, to apply 
funds of the maker or acceptor on deposit at maturity 
to payment of the paper, in the absence of a Avell-defined 
custom binding on the maker or acceptor, or of an ex- 
press authorization. '8 This rule is certainly reason- 

36 Dows V. National Exchange Bank of Milwaukee, 91 U. S. 618; 
Security Bank of Minnesota v. Luttgen, 29 Minn. 363. 

37 American Trust & Savings Bank v. Austin, 25 Misc. Rep. 454, 
55 N. Y. Supp. 561. 

38 Adams v. Hackensack Improvement Commission, 44 N. J. Law, 
638, 43 Am. Rep. 406; Wood v. Merchants' Saving, Loan & Trust 
Co., 41 111. 267, 270; Ridgely Nat. Bank v. Patton, 109 111. 479, 483; 
Haines v. McPerren, 19 111. App. 172; National Exchange Bank v. 
National Bank of North America, 132 Mass. 150; Scott v. Shirk, 60 
Ind. 160; Grissom v. Commercial Nat. Bank, 87 Tenn. 351, 10 S. 
W. 774; St. Paul Nat. Bank v. Cannon, 46 Minn. 95, 48 N. W. 526; 
Walton v. Henderson, Smith (N. H.) 168; Gordon v. Muchler, 34 La. 
Ann. 604; Sebag v. Abitbol, 4 Maule & S. 462; Turner v. Hayden, 
4 Barn. & C. 1. 

The rule as stated in McGill v. Ott, 10 Lea (Tenn.) 147, is that 
"a man who receives the money as agent of another cannot simply, 

(71) 



§ 42 BANK COLLECTIONS. [Ch. 3 

able, and any other involves an unwarranted enlarge- 
ment of the authority of a collecting bank. There are 
some authorities, however, that hold a contrary doc- 
trine.^^ 

The case of Mandeville v. Union Bank of George- 
town*" is freqiiently cited to the proposition that the 
bank is authorized, by a note made payable at the bank, 
to advance to the owner of the note the sum named 
therein on the credit of the maker; but the exact lan- 
guage of Chief Justice IMarshall in that case was : "By 
making a note negotiable in bank, the maker authorizes 
the bank to advance on his credit to the owner of the 
note the sum expressed on its face," and it will be found, 
on careful examination, that the only matter considered 
Avas Avhether one Avho has authorized a bank to discount 
his note can thereafter set off debts he held against the 
payee of the note. 

The case of Commercial National Bank v. Henninger*^ 

in that capacity, make an application of suck money to the payment 
of his principal's debt without the assent, expressed or implied, of 
the principal." 

Application of proceeds of collection belonging to member of 
firm, to payment of firm's note held for collection, see post, § 134. 

39lndig V. National City Bank of Brooklyn, 80 N. Y. 100, 106; 
Aetna Nat. Bank v. Fourth Nat. Bank, 46 N. Y. 82, 88; Robarts v. 
Tucker, 16 Adol. & El. (N. S.) 578; Porster v. Clements, 2 Camp. 
17; Whitaker v. Bank of England, 6 Car. & P. 700. See, also. 
Riverside Bank v. First Nat. Bank of Shenandoah, 74 Fed. 276. 

The first case cited above was decided by a divided court, and 
relied in part on Lazier v. Horan, 55 Iowa, 75, 7 N. W^ 457, which 
lias since been overruled by Bank of Montreal v. Ingerson, 105 Iowa, 
349, 75 N. W. 351. 

*o 9 Cranch (U. S.) 9. 

41 105 Pa. St. 496. See, also. Home Nat. Bank v. Newton, 8 Bradw. 
(111.) 563. 

(Y2) 



Ch. 3] DUTIES AND DEFAULTS. § 42 

is also frequently cited as holding contrary to the doc- 
trine of the text, but on examination is found to hold 
merely that a bank may apply a deposit to payment of 
a note due the bank from the depositor, and cannot 
waive this right of set-off, to the prejudice of an in- 
dorser on the note. 

Statutes recently adopted in many of the states pro- 
vide that, A\here a negotiable instrument is made pay- 
able at a bank, it is equivalent to an order to the bank 
to pay the same for the account of the principal debtor 
thereon.*" At first blush, these provisions seem at vari- 
ance with the principles just announced, but a closer 

i= Negotiable Instruments Laws: Colorado (Laws 1897, c. 64) § 
87; Connecticut (Laws 1897, c. LXXIV) § 87; District of Columbia 
(U. S. Stat, at Large 1897-99, c. 47) § 87; Florida (Laws 1897, c. 
4524, No. 10) § 87; Maryland (Laws 1898, c. 119) § 106; Massa- 
chusetts (Acts and Resolves 1898, c. 533) § 87; New York (Laws 
1897, c. 612) § 147; North Carolina (Pub. Laws 1899, c. 733) § 87; 
North Dakota (Laws 1899, c. 113) § 87; Oregon (Laws 1899, p. 18) 
§ 87; Rhode Island (Laws 1899, c. 623, p. 24) § 95; Tennessee (Laws 
1899, c. 94) § 87; Utah (Laws 1899, c. 83) § 87; Virginia (Acts 
Assem. 1897-98, c. 866) § 87; Washington (Laws 1899, c. CXLIX) § 
-87; Wisconsin (Laws 1899, c. 356) § 1687-17. 

A "bank," within the meaning of the negotiable instruments laws, 
includes "any person or association of persons carrying on the 
business of banking, whether incorporated or not." Negotiable 
Instruments Laws: Colorado (Laws 1897, c. 64) § 191; Connecticut 
(Laws 1897, c. LXXIV) art. 1; District of Columbia (U. S. Stat, 
at Large 1897-99, c. 47) art. 1; Florida (Laws 1897, c. 4524, No. 
10) art. 1; Maryland (Laws 1898, c. 119) § 14; Massachusetts (Acts 
and Resolves 1898, c. 533) § 191; New York (Laws 1897, c. 612) § 2; 
North Carolina (Pub. Laws 1899, c. 733) § 191; North Dakota (Laws 
1899, c. 113) § 191; Oregon (Laws 1899, p. 18) § 190; Rhode Island 
(Laws 1899, c. 623, p. 24) § 2; Tennessee (Laws 1899, c. 94) art. 1; 
Utah (Laws 1899, c. 83) § 191; Virginia (Acts Assem. 1897-98, c. 
;866) § 191; Washington (Laws 1899, c. CXLIX) § 191; Wisconsin 
.(Laws 1899, c. 356) § 1675. 

(73) 



§ 42 BANK COLLECTIONS. [Ch. 3 

examination shows that thev do not necessarily mean 
that the bank has authority to apply the deposit of the 
obligor to the payment of the claim in any event. They 
merely make the instrument an "order" which, like any 
other order, is not binding as between the creditor and 
the bank until acceptance by the bank.*^ Any other 
interpretation would place these provisions in direct 
conflict with other provisions of the same statutes, con- 
sidered in the next section. 

That a bank has no implied authority to pay a note 
given by one of its customers payable at the bank, and 
deposited with it for collection, cannot well be disputed 
if the maker has no funds in the bank at the maturity 
of the note;** and the bank is not required to appro- 
priate to the part payment of the note money deposited 
by the maker after maturity of the note.*^ Nor is a 
bank bound to apply a balance of current account in 
favor of a customer to payment of a bill of exchange 
drawn by him, of which it is an indorsee for collection ; 
and in a suit by the bank against the acceptor of such 
bill, the fact that there was such a balance in iavor of 

43 Harris v. Clark, 3 N. Y. 115; Cowperthwaite v. Sheffield, 1 
Sandf. (N. Y.) 416; Weinstock v. Bellwood, 12 Bush (Ky.) 139. , 

** Merchants' & Planters' Bank v. Meyer, 56 Ark. 499, 20 S. W.. 
406; Coates v. Preston, 105 111. 470; In re Brown, 2 Story, 502, 
Fed. Cas. No. 1,985. 

45 Merchants' & Planters' Bank v. Meyer, 56 Ark. 499, 510, 20 S. 
W. 406; National Bank of Newburgh v. Smith, 66 N. Y. 271; Voss. 
V. German American Bank of Chicago, 83 111. 599; People's Bank of 
Wilkes-Barre v. Legrand, 103 Pa. St. 309; First Nat. Bank of Lancas- 
ter V. Shreiner, 110 Pa. St. 188; Coates v. Preston, 105 111. 470; la 
re Brown, 2 Story, 502, Fed. Cas. No. 1,985. 



Ch. 3] DUTIES AND DEFAULTS. g 42 

the drawer after protest does not show a payment or 
satisfaction of the bill by the drawer.*** 

Special instructions from the debtor may modify or 
negative the operation of the general rule as stated in 
the first paragraph of this section. If a bank is in- 
structed by the debtor to apply the proceeds of certain 
drafts, deposited by him, to payment of his note held by 
it for collection, it is liable to him for the amount of the 
drafts in case it makes any other disposition thereof.*^ 
But a deposit of funds at a bank, with directions to ap- 
ply them to payment of an accepted bill payable there, 
will be presumed to have been made by the acceptor, 
and not by the maker; so that, while the presumption 
is unrebutted, the former is the only one that can main- 
tain an action against the bank for negligence in not 
applying the funds as directed.** 

To hold a bank liable for nonapplication or misap- 
plication of money left to take up paper held for collec- 
tion, the money should be left with the proper officer 
of the bank ; and it has been held that a bank at which 
an accepted bill is payable is not liable for not apply- 
ing to payment thereof money left with the paying teller 
for that purpose, there being also a receiving teller in 
the bank, in the absence of proof of a custom to allow 
the paying teller to act as receiving teller also, as the 
teller, in such case, is the agent of the depositor, and 
not of the bank.*® 

io Citizens' Bank of Steubenville v. Carson, 32 Mo. 191. 

*' First Nat, Bank of Texarkana v. Munzesheimer (Tex. Civ. 
App.) 26 S. W. 428. 

48 Thatcher v. Bank of State of New York. 7 N. Y. Super. Ct. 121, 
130. 

*o Thatcher v. Bank of State of New York, 7 N. Y. Super. Ct. 121. 

(75) 



§ 43 BANE COLLECTIONS. [(Jh. 3 

The authority and duty of the collecting bank as to 
application of deposits to take up paper payable at the 
bank must be carefully distinguished from its authority 
and duty in case the paper is made negotiable at the 
bank. By reference to the decision of Chief Justice 
Marshall, quoted above in this section, it is seen that 
paper of the latter class gives authority to the bank to 
advance the amount thereof on the credit of the maker. 
It may also pay such paper out of the funds of the maker 
or drawer in its hands.^" 

§ 43. Cheek or draft not an assignment of fund. 

Supplementing and enlarging the rule announced in 
the previous section is the doctrine that a negotiable 
check or draft does not operate as an equitable assign- 
ment of the fund on which it is drawn, and that the 
bank or other drawee is not liable to the holder prior to 
acceptance or certification.'^ This is also the rule 

50 Bedford Bank v. Acoam, 125 Ind. 584; Mandeville v. Union 
Bank of Georgetown, 9 Cranch (U. S.) 9. 

51 Check not an assignment of fund. Bank of Republic v. Millard, 
10 Wall. (U. S.) 152; Georgia Seed Co. v. Talmadge, 96 Ga. 254; 
Colorado Nat. Bank of Denver v. Boettcher, 5 Colo. 185; Exchange 
Bank of Wheeling v. Sutton Bank, 78 Md. 577, 23 L. R. A. 173; 
Bank of Antigo v. Union Trust Co., 149 111. 343; Carr v. National 
Security Bank, 107 Mass. 45; First Nat. Bank of Union Mills v. 
Clark, 134 N. Y. 368; Akin v. Jones, 93 Tenn. 353, 25 L. R. A. 523. 

• Draft not an assignment. Bosworth v. Jacksonville Nat. Bank, 
64 Fed. 615; Meldrum v. Henderson, 7 Colo. App. 256, 43 Pac. 148; 
Whitney v. Eliot Nat. Bank, 137 Mass. 351; Lynch v. First Nat. 
Bank of Jersey City, 107 N. Y. 179; Sunderlin v. Mecosta County 
Sav. Bank, 116 Mich. 281, 74 N. W. 478. 

See, also. People v. Merchants' & Mechanics' Bank of Troy, 78 N. 
Y. 269; City Bank of HopkinsVille v. Blackmore, 21 C. C. A. 514, 
75 Fed. 771; Nonotuck Silk Co. v. Flanders, 87 Wis. 237, 58 N. W. 

(Y6) 



Ch. 3] DUTIES KNO DEFAULTS. | 43 

adopted, in substaatially the same language, in tlie ne- 
gotiable instruments laws.^^ The rule is based on tlie 
theory that, prior to acceptance or certification, there 
is no contract relation, either express or implied from 
the nature of the transaction, between the bank and 
the holder of the papei', and is undoubtedly sound.^'' 

Yet we have decisions holding that a check drawn on 
a bank operates as an assignment of the fund in the 
bank,^* and other decisions that it so operates unless 

383, overruling McLeod v. Evans, 66 Wis. 401, 28 N. W. 173, 214, 
Francis v. Evans, 69 Wis. 115, 33 N. W. 93, and Bowers v. Evans, 
71 Wis. 133, 36 N. W. 629. 

But if drawn on a particular fund (and therefore not negotiable), 
a check or draft may operate as an equitable assignment. Kahn- 
weiler v. Anderson, 78 N. C. 133; Robbins v. Bacon, 3 Me. 346; 
Ballou V. Boland, 14 Hun (N. Y.) 355. But see Grammel v. Carmer, 
55 Mich. 201. 

52 Negotiable Instruments Laws: Colorado (Laws 1897, c. 64) §§ 
127, 189; Connecticut (Laws 1897, c. LXXIV) §§ 127, 189; District 
of Columbia (U. S. Stat, at Large 1897-99, c. 47) §§ 127, 189; Florida 
(Laws 1897, c. 4524, No. 10) §§ 127, 189; Maryland (Laws 1898, c. 
119) §§ 146, 208; Massachusetts (Acts and Resolves 1898, c. 533) §§ 
127, 189; New York (Laws 1897, c. 612) §§ 211, 325; North Caro- 
lina (Pub. Laws 1899, c. 733) §§ 127, 189; North Dakota (Laws 
1899, c. 113) §§ 127, 189; Oregon (Laws 1899, p. 18) §§ 127, 189; 
Rhode Island (Laws 1899, c. 623, p. 24) §§ 135, 197; Tennessee 
(Laws 1899, c. 94) §§ 127, 189; Utah (Laws 1899, c. 83) §§ 127, 189; 
Virginia (Acts Assem. 1897-98, c. 866) §§ 127, 189; Washington 
(Laws 1899, c. CXLIX) §§127, 189; Wisconsin (Laws 1899, c. 356) 
§§ 1680a, 1684-5. 

53 Luff V. Pope, 5 Hill (N. Y.) 413; Colorado Nat. Bank of Denver 
V. Boettcher, 5 Colo. 185; Bailey v. Southwestern Railroad Bank, 11 
Fla. 266; Bullard v. Randall, 1 Gray (Mass.) 605; First Nat. Bank 
of Northumberland v. McMichael, 106 Pa. St. 460. See, also, cases 
cited in note 51, supra. 

54Fonner v. Smith, 31 Neb. 107, 47 N. W. 632, 11 L. R. A. 528; 
Columbia Nat. Bank of Lincoln v. German Nat. Bank, 56 Neb. 803, 

77 



§ 44 BANK COLLECTIONS. [Ch. 3 

the check is for an amount larger than the amount in 
the bank to the credit of the drawer.^'' 

§ 44. Time and manner of receiving payment. 

The general authority of the collecting bank to re- 
ceive payment for the owner ^^ is usually exercised at 
the time the paper is due ; but there is authority for the 
doctrine that the bank may receive payment before ma- 
turity. So it has been held that where the bank has 
general unrestricted authority to collect a draft, the 
debtor will be protected in making payment to such 

77 N. W. 346; Farmers' Bank & Trust Co. v. Newland, 97 Ky. 464; 
Lester v. Given, 8 Bush (Ky.) 357; Morrison v. McCartney, 30 Mo. 
183. 

55 c. M. Henderson & Co, v. United States Nat. Bank (Neb.) 80 N. 
W. 898; Rouse v. Calvin, 76 111. App. 362; Bank of Antigo v. Union 
Trust Co., 149 111. 343, 36 N. E. 1029, 23 L. R. A. 611; Coates v. 
Preston, 105 111. 470; Dana v. Third Nat. Bank, 13 Allen (Mass.) 
445; Beauregard v. Knowlton, 156 Mass. 395, 31 N. E. 389. 

The circuit court of the United States for the northern district 
of Illinois, in Essex County Nat. Bank v. Bank of Montreal, 7 
Biss. 193, 199, Fed. Cas. No. 4,532, follows Bank of Republic v. 
Millard, 10 Wall. (U. S.) 152, and repudiates the Illinois doctrine, 
stating that, though the transaction arose in Illinois, the court was 
not bound by the decisions of that state, since the matter involved 
commercial securities, and belonged to the domain of general juris- 
prudence. See, also. Township of Pine Grove v. Talcott, 19 Wall. 
(U. S.) 666. 

56 Alley V. Rogers, 19 Grat. (Va.) 366; King v. Fleece, 7 Heisk. 
(Tenn.) 273; Padfleld v. Green, 85 111. 529. See, also, ante, §§ 24, 25. 

This rule has been embodied in the negotiable instruments laws 
adopted recently in so many states. Negotiable Instruments Laws: 
Colorado, Connecticut, District of Columbia, Florida, Massachusetts, 
North Carolina, North Dakota, Oregon, Tennessee, Utah, Virginia, 
Washington (§ 37); Rhode Island (§ 45); Maryland (§ 56); New 
York (§ 67); Wisconsin (§ 1676-7). 
(78) 



•Ch. 3] DUTIES AND DEFAULTS. § 45 

bank, before the draft is due, so that if the bank fails 
after receiving such payment, but before the draft is 
■due, the loss falls on the owner of the draft.^'' The 
bank may also receiye payment after dishonor, if the 
paper remains in its possession.^^ It must, however, 
■obtain payment in full, for it has no implied authority 
to accept part payment.^'' 

5 45. Extensions and renewals. 

In the absence of specific instructions, the collecting 
bank has no authority to give the debtor an extension 
■of time, or to renew the obligation at his instance."" 
But the bank is sometimes expressly authorized to ex- 
tend or renew the debt on certain conditions, or for a 
:fixed period, and i^ held to a strict accountability for 
any departure from the specific instructions given."^ 
Thus, where the collecting bank was, before maturity 
■of the paper, instructed to grant a renewal on condition 
that a solvent indorser be obtained for the new instru- 
ment, the bank is liable to the holder in case it grants 
a renewal without such indorsement, and surrenders 
the old instrument to the acceptor thereon, who there- 
after becomes insoh-ent before the maturity of the new 
instrument.'*- And a collecting bank, authorized by the 

" Bliss T Cutter, 19 Barb. (N. Y.) 9. 
5s See ante, § 31. 

59 Lowenstein v. Bresler, 109 Ala. 326, 19 So. 860- Capitol State 
Bank v. Lane, 52 Miss. 677. 

CO Scott V. Gilkey, 153 111. 168, 39 N. B. 265. 

01 Central Georgia Bank v. Cleveland Nat. Bank, 59 Ga. 667; 
Omaha Nat. Bank v. Kiper (Neb.) 82 N. W. 102. 

02 Central Georgia Bank v. Cleveland Nat. Bank, 59 Ga. 667. The 
court in this case considers the question of the solvency of the 

(79) 



§ 46 BANK COLLECTIONS. [Ch. 3 

holder to give the debtor a twenty-daj^ extension, is 
liable for any loss sustained through giving him a thirty- 
day extension instead."^ 

§ 46. Medium of payment — As general rule, bank can take 
money only. 

As commercial paper is payable in money only,^* a 
collecting bank is not authorized to receive in payment 
thereof anything but money.''^ "Currency," so called, 

maker as affecting the amount of damages, and states that there 
is no evidence in the case which tends to negative the general pre- 
sumption that the debt was that of the acceptor, and not a debt, 
primarily, of the drawer. 

63 Omaha Nat. Bank v. Kiper (Neb.) 82 N. W. 102. 

«* Hodges V. Clinton, 1 N. C. 79; Fry v. Rousseau, 3 McLean, 106, 
Fed. Cas. No. 5,141. 

63 National Bank of Commerce of Seattle v. Johnson, 6 N. D. 
180, 69 N. W. 49; Levi v. National Bank of Missouri, 5 Dill. 104, 
15 Fed. Cas. 415-417; Ward v. Smith, 7 Wall. (U. S.) 447; Marine 
Bank v. Fulton Bank, 2 Wall. (U. S.) 252; German American Bank 
v. Third Nat. Bank, 18 Abb. Law J. 252, Fed. Cas. No. 5,359; Libby 
v. Hopkins, 104 "U. S. 307; Foster v. Rincker, 4 Wyo. 484, 35 Pac. 
470; Merchants' Nat. Bank of Philadelphia v. Goodman, 109 Pa. St. 
422, 2 Atl. 687; McCulloch v. McKee, 16 Pa. St. 289; Fifth Nat. Bank 
V. Ashworth, 123 Pa. St. 212, 16 Atl. 596; Commercial Bank of 
Pennsylvania v. Union Bank of New York, 1 Hun (N. Y.) 203; 
People V. City Bank of Rochester, 96 N. Y. 32; Nunnemaker v. 
Lanier, 48 Barb. (N. Y.) 234; Whipple v. Walker, 2 Thomp. & C. 
(N. Y.) 456; Midland Nat. Bank of Kansas City v. Brightwell, 148 
Mo. 358, 49 S. W. 994; National Bank of Commerce v. American 
Exchange Bank, 151 Mo. 320, 52 S. W. 265; Scott v. Gilkey, 153 111. 
168, 39 N. E. 265; Lochenmeyer v. Pogarty, 112 111. 572; Padfield v. 
Green, 85 111. 529; Western Brass Mfg. Co. v. Maverick, 4 Tex. Civ. 
App. 535, 23 S. W. 728; Second Nat. Bank of Columbia v. Cum- 
mings, 89 Tenn. 609, 620; Graydon v. Patterson, 13 Iowa, 258; Mc- 
Carver v. Nealey, 1 G. Greene (Iowa) 360; Drain v. Doggett, 41 
Iowa, 682. 

(80) 



Ch. 3] DUTIES AND DEFAULTS. § 46 

is not money, and the bank is not authorized to receive 
it in payment.^" 

A collecting bank has no authority to receive depre- 
ciated bank notes in payment, though such notes con- 
stituted the principal currency for ordinary business 
in that locality at that time.^^ 

Confederate money or currency was also under the 
ban, and banks have been held liable for taking it in 
payment during the Civil War.^^ 

Nor, in the absence of custom or agreement render- 
ing checks,"^ drafts or other evidences of debt, "money," 
for the purpose of the particular transaction, is a bank 
authorized to receive them in payment.'^" So, it is an 
irregularity for the initial bank to take from its corre- 
spondent in payment a draft by it on another bank;^^ 
but the irregularity is waived by the owner if, after the 
draft has been dishonored on presentation, and with 

6« Graydon v. Patterson, 13 Iowa, 256^ 81 Am. Dec. 432 ; Carter v. 
Talcott, 10 Vt. 471; McCarver v. Nealey, 1 G. Greene (Iowa) 360. 
"Illinois currency" or "currency" is not money. Id.; Ruidskofl v. 
Barrett, 11 Iowa, 172. But see Butler v. Paine, 8 Minn. 324 (Gil. 
284). 

er Ward v. Smith, 7 Wall. (U. S.) 447. See, also, Ontario Bank v. 
Lightbody, 13 Wend. (N. Y.) 105 (bank bill of suspended bank). 

68 Alley V. Rogers, 19 Grat. (Va.) 366, 386; Waterhouse v. Citizens' 
Bank of Louisiana, 25 La. Ann. 77; Strauss v. Bloom & Co., 18 La. 
Ann. 48. A suit for the amount collected, and not for the paper or 
its value, was not a ratification of the act of the bank in receiving 
Confederate money. Id. 

69 See post, § 47. 

ToHazlett v. Commercial Nat. Bank. i32 Pa. St. 118, 19 Atl. 55, 
and cases cited in notes 65, supra, and 71, infra. 

71 Hazlett V. Commercial Nat. Bank, 132 Pa. St. 118, 19 Atl. 55. 

(81) 



§ 47 BANK COLLECTIONS. [Ch. 3 

knowledge of that fact, he directs that the draft be held 
for a day or two.''^ 

The bank cannot accept in payment a note running 
to itself;'^ nor, as we shall see in sections 48 and 49, 
can it properly accept in payment a claim against itself. 

If the collecting bank accepts the certification of the 
drawee bank on a check delivered for collection in lieu 
of actual payment, it assumes the risk of nonpayment 
by such drawee,^* and if, instead of payment, it takes 
the mere acceptance of the drawee bank on the check, 
with a view to a general settlement ^\'ith that bank the 
following day, and the latter fails before such settle- 
ment, the former bank cannot hold the maker.^^ 

§ 47. Checks on other banks. 

It is a general rule of commercial law that, as between 
obligor and obligee, a check does not operate as a pay- 
ment unless and until it is paid.'® And there is no 
good reason why a bank should be allowed to accept, for 
the owner of paper in its hands for collection, other pa- 
per in the form of a check on another bank. There are 
good reasons, however, why it should not be allowed to 

72 Hazlett V. Commercial Nat. Bank, 132 Pa. St. 118, 19 Atl. 55. 
T3 Scott V. Gilkey, 153 111. 168, 39 N. B. 265. But see Citizens' 
Bank of Paris v. Houston, 98 Ky. 139, 32 S. W. 397. 

74 Essex County Nat. Bank v. Bank of Montreal, 7 Biss. 193, Fed. 
Cas. No. 4.532. 

75 La Banque Jacaues-Cartier v. La Corporation de Limoilou, 17 
Rep. Jud. Que. C. S. 211. 

76 Lowenstein v. Bresler, 109 Ala. 326, 19 So.- 860; Burkhalter v. 
Second Nat. Bank of Erie, 42 N. Y. 538, 40 How. Pr. 324; Hamill 
•V. German Nat. Bank, 13 Colo. 203; Steinhart v. National Bank of 
D'. O. Mills & Co., 94 Cal. 362. 

(83) 



Ch. 3] DUTIES AND DEFAULTS. § 47 

do SO. Aside from the fact that such a transaction in- 
volves a double collection, with the delay incident there- 
to, there is the further and more potent objection that 
the check may not be paid on presentation. Not only 
does the interest of the customer forbid the acceptance 
of a check in payment, but also the interest of the bank 
itself; for if it takes a check, and loss results, the bank 
is the loser. By surrendering to the obligor the paper 
left for collection, and taking from him his check for 
the amount thereof, the bank assumes the risk of non- 
payment of the check.'^''' 

As intimated above, this strict rule may be modified 
by a general and long-continued custom of such standing 
as to create a presumption that all persons ' dealing 
"with banks have knowledge of it.''^ So, it has been held 
that a custom of local banks to accept in payment of 
drafts sent for collection certified checks on one of their 
own number in good standing, and to present such 
checks at 11 a. m. each day, and leave them for examina- 

T! German-American Bank v. Third Nat. Bank, 18 Alb. Law J. 
252, Fed. Cas. No. 5,359; Levi v. National Bank of Missouri, 5 Dill. 
104, Fed. Cas. No. 8,289; Marine Bank v. Fulton Bank, 2 Wall. (U. 
S.) 252; Ward v. Smith, 7 Wall. (U. S.) 447; Fifth Nat. Bank v. 
Ashworth, 123 Pa. St. 212, 16 Atl. 596 (cashier's check) ; Merchants' 
Nat. Bank v. Goodman, 109 Pa. St. 422, 2 Atl. 687; McCulloch v. 
McKee, 16 Pa. St. 289; Commercial Bank of Pennsylvania v. Union 
Bank of New York, 1 Kern. (N. Y.) 203; Graydon v. Patterson, 13 
Iowa, 258; National Bank of Commerce v. American Exchange Bank, 
151 Mo. 320, 52 S. W. 265; Second Nat. Bank of Columbia v. Cum- 
mings, 89 Tenn. 609, 620; Western Brass Mfg. Co. v. Maverick, 4 
Tex. Civ. App. 535, 23 S. W. 728; Nunnemaker v. Lanier, 48 Barb. 
(N. Y.) 234. 

Where check is on collecting bank, see post, § 49. 

f 8 Jefferson County Sav. Bank v. Commercial Nat. Bank, 98 Tenn. 
337, 39 S. W. 338; Farmers' Bank & Trust Co. v. Newland, 97 
Ky. 464. 

(83) 



§ 47 BANK COLLECTIONS. [Ch. 3 

tion, is reasonable, and will relieve the collecting bank 
from liability in case the certifying bank fails after 11 
a. m. on the day of-presentment, and a check is returned 
unpaid, though the owner of the paper was ignorant of 
the custom.^^ Yet, again, it has been held that a usage 
under which banks surrender drafts sent for collection, 
on receiving merely the check of the drawee, is unrea- 
sonable ;^° and that where the obligor is a trust com- 
pany, the existence of a custom in the city where it did 
business, of taking its checks without certification, in 
the same manner as bank checks, is no defense.*^ 

The supreme court of Kentucky considers good faith 
on the part of the bank as the chief factor in determin- 
ing its liability, and has held that, if the bank acts in 
good faith for its customer in taking a subsequently dis- 
honored check for the amount of paper deposited for col- 
lection, it is not liable to him;^^ and that no recovery 
can be had against a bank for alleged negligence in sur- 
rendering to the drawer a check delivered to it for col- 
lection, after nonpayment and protest, and receiving a 
check on another bank payable to itself in lieu thereof, 
the latter also having been dishonored, if the drawer 
was insolvent when he drew the first check, and the bank 
acted in good faith throughout as the agent of the origi- 
nal payee, and substituted the new check merely in the 
hope of subserving the interests of such payee.®^ 

TO Jefferson County Sav. Bank v. Commercial Nat. Bank, 98 Tenn. 
337, 39 S. W. 338. 

so National Bank of Commerce v. American Exchange Bank, 151 
Mo. 320, 52 S. "W;. 265. 

81 Nunnemaker v. Lanier, 48 Barb. (N. Y.) 234. 

82 Farmers' Bank & Trust Co. v. Newland, 97 Ky. 464. 

S3 Citizens' Bank of Paris v. Houston, 98 Ky. 139, 32 S. W. 397. 
The court in this case states further: "The fact of the new check 
(84) 



Ch. 3] DUTIES AND DEFAULTS. ' § 48 

§ 48. Claims against collecting bank — Certificates of de- 
posit. 

A collecting bank is not authorized to receive in pay- 
ment a claim against itself, in the absence of a well-de- 
fined custom, or an express authorization.** The rea- 
son for this is quite apparent; for the bank might see 
fit to delay or defeat enforcement of the claim, and could 
do so readily. So it has been held that a collecting 
bank is not authorized to receive in payment its own 
certificates of deposit.®^ But, inasmuch as certificaties 
of deposit are treated as cash by almost universal cus- 
tom among banks, the rule is that, where such custom 
is in force, a payment to the bank in its own certificates 
of deposit is a sufficient payment.*" 

In Iowa, this custom is considered to be so general 
that the courts take judicial notice of it.*^ 

being made payable to the casbier of defendant is no evidence of 
its intention to assume ownership of the check, or become liable 
to plaintiff therefor, because, he being absent, it had to be drawn 
in that way In order to procure proper presentation and payment." 

84 Bank of Montreal v. Ingerson, 105 Iowa, 349, 75 N. W. 351; Na, 
tional Life Ins. Co. v. Goble, 51 Neb. 5, 70 N. W. 503; State Bank 
of Midland v. Byrne, 97 Mich. 178, 56 N. W. 355; Francis v. Evans, 
69 Wis. 115, 33 N. W. 93. 

85 Francis v. Evans, 69 Wis. 115, 33 N. W. 93. 

As to sufficiency of evidence to show that payment was made in 
money, and not in certificates of deposit, see Wallace v. Stone, 107 
Mich. 190, 65 N. W. 113. 

86 British & American Mortgage Co. v. Tibballs, 63 Iowa, 468, 19 
N. W. 319 (Reed, J., dissenting). But see Drain v. Doggett, 41 Iowa, 
682; McCarver v. Nealey, 1 G. Greene (Iowa) 360; Marine Bank of 
Chicago V. Chandler, 27 111. 526. 

87 British & American Mortgage Co. v. Tibballs, 63 Iowa, 468 
19 N. W. 319. 

'(85) 



§ 50 BANK COLLECTIONS. [Ch. 3 

§ 49. Same — Checks on collecting bank. 

On the same theory, a bank ought not to be allowed 
to accept a check on itself in payment of a collection 
unless the transaction is sanctioned by agreement or 
custom. But custom governs here also, and it has been 
held that a payment to the collecting bank by a check 
on itself is equivalent to a payment in money, though 
the bank fails the same day.** It has also been held that 
a check on the collecting bank, which is in funds to 
meet it, coupled with a charge against the account of 
the drawer of the check, operates as a payment.** 

To the same effect is a decision that a complete col- 
lection of a note takes place where the collecting bank 
receives the check of the maker, Avho has a deposit in the 
bank more than sufficient to cover the check, and a suf- 
ficient amount of the general funds of the bank are ac- 
tually appropriated to pay the note, so that the owner 
of the note is the owner of the money so appropriated, 
as against a receiver of the bank.®" 

§ 50. Collecting bank also a creditor of obligor — Cannot ob- 
tain preference — Exceptions. 

It is a general rule of agency that an agent who has 
any business to transact on his own personal account, 
conflicting with that intrusted to him by his principal, 
must always give the latter the preference.*^ This rule 

88 Sayles v. Cox, 95 Tenn. 579, 32 S. W. 626. 

89 Scott V. Gilkey, 153 111. 168, 39 N. E. 265. But see Second Nat. 
Bank of Columbia v. Cummlngs, 89 Tenn. 609. 

90 Arnot v. Bingham, 55 Hun, 553, 9 N. Y. Supp. 68. 

91 Commercial Bank v. Red River Valley Nat. Bank, 8 N. D. 382, 
79 N. W. 859. 

(86) 



Ch. 3] DUTIES AND DEFAULTS. § 50 

is embodied in the statutes of North Dakota,^^ and an 
instructive case arose thereunder. A Fargo bank re- 
ceived for collection from a New York bank, two notes 
against a resident of Fargo, which had been previously 
turned over to the New York bank for collection. At 
the time it received the notes, the Fargo bank had a 
claim against the same debtor, and knew him to be in 
failing circumstances, but, without notifying the New 
York bank of that fact, retained possession of the notes 
until fourteen and thirty daj's, respectively, after their 
maturity, at which time it reported that the notes had 
not been paid, and that there was no prospect of pay- 
ment, as the debtor was insolvent. In the meantime, 
and before the maturity of either of the notes, the Fargo 
bank had taken from the debtor as security for its own 
claim, mortgages covering all the debtor's property. 
The court held that it was the duty of the Fargo bank 
either to decline the trust in toto, or to discharge it 
faithfully, and that it was liable to the New York bank 
for the damages sustained.^^ 

Another very pertinent application of the rule is 
found in a North Carolina case holding that a bank 
Avhich voluntarily assumes the agency to collect a check, 
when it is a heavy creditor of the drawer, and is aware 
of his financial embarrassment, and has secured most 
of his effects, and is taking other measures to further 

92 Civil Code, § 4111. 

K3 Commercial Bank v. Red River Valley Nat. Bank, 8 N. D. 382, 
79 N. W. 859. See, also, Dern v. Kellogg, 54 Neb. 560, 74 N. W. 
844; Mound City Paint & Color Co. v. Commercial Nat. Bank of 
Ogden, 4 Utah, 353, 9 Pac. 709. 

Measure of damages, see post, § 182. 

(87) 



§ 50 BANK COLrLBCTIONS. [Ch. 3 

secure itself, is guilty of negligence, as a matter of law, 
in not presenting the check or taking any measures to 
-collect it for four days, since "the rule of good faith, 
which is equity, will not allow the agent to sacrifice the 
interests of his principal to his own."^* Such a pro- 
cedure on the part of a collecting bank is nothing less 
than actual fraud, which no custom or usage among 
banks will justify.®^ 

It is not necessary, in such a case, for the plaintiff 
to show with certainty that payment would have been 
made but for the default and misconduct of the col- 
lecting bank ; but a prima, facie case is made on a show- 
ing of a reasonable probability of payment.^^ 

In an action against a collecting bank for negligence 
and fraud In refusing to turn over a draft to attorneys 
to enforce payment until after the drawee had become 
insolvent, and the bank had obtained a mortgage to se- 
cure a claim of its own against the same debtor, it is no 
defense that the order to turn the draft over to the at- 
torneys was received after banking hours on Saturday, 
and the mortgage was obtained on Monday morning;®^ 
nor was it a defense that the draft was improperly in- 
dorsed to defendants by a collection agency, through 
whose hands it had passed.^^ There ate, however, cir- 
cumstances under which it has been deemed proper for 
a collecting bank to secxire its own claim against the 

9* Bank of New Hanover v. Kenan, 76 N. C. 340. 
05 Dern v. Kellogg, 54 Neb. 560, 74 N. W. 844. 
seDern v. Kellogg, 54 Neb. 560, 74 N. W. 844; Commercial Bank 
T. Red River Valley Nat. Bank, 8 N. D'. 382, 79 N. W. 859. 
9T Finch V. Karste, 97 Micb. 20, 56 N. W. 123. 
98 Pinch V. Karste, 97 Mich. 20, 56 N. W. 123. 
(88) 



Oh. 3] DUTIES AND DEFAULTS. § 50 

common debtor, to the prejudice of the rights of the 
owner of the collection. Thus, it has been held that a 
bank holding paper for collection merely, without spe- 
cific instructions, and Avith no duty to perform except 
the proper presentation of the papers, may, after ful- 
filling that duty properly, take security from the debtor 
on a claim of its own against him, and thus obtain a 
preference, if the transaction is free from misrepresen- 
tation or fraudulent concealment.^^ 

It has also been held that where a bank, without 
fraud or concealment, performs to the letter the special 
instructions it has received in regard to the collection, 
viz., to telegraph the senders in case of nonpayment, 
an attachment by the bank on a claim of its own against 
the common debtor, levied two days after it telegraphed 
the fact of nonpayment, will stand.^*"* The bank in this 
<;ase having been instructed to telegraph the fact of non- 
payment, and await a reply, and having received no re- 
ply within the two days, was deemed to be under no ob- 
ligation to bring suit for its customer immediately on 
nonpayment.^ °^ 

T\liile the cases last considered may be good law be- 
cause based on a technical performance of specific in- 
structions, yet they are hardly compatible with entire 
good faith on the part of the bank, for there is at least 
one very material fact within the knowledge of the bank 

00 United States Nat. Bank of Omaha v. Westervelt, 55 Neb. 424, 
75 N. W. 857, distinguishing Dern v. Kellogg, 54 Neb. 560, 74 N. W. 
S44; Freeman v. Citizens' Nat. Bank, 78 Iowa, 150, 42 N. W. 632; 
First Nat. Bank of Abilene v. Nalll, 52 Kan. 211, 34 Pac. 797. 

100 Freeman v. Citizens' Nat. Bank, 78 Iowa, 150, 42 N. W. 632. 

101 Freeman v. Citizens' Nat. Bank, 78 Iowa, 150, 42 N. W. 632. 

(89) 



§ Si BANK COLLECTIONS. [Ch. 3- 

which has not been made known to the customer. That 
is the fact that the bank is also a cr^dito^ of the same 
debtor. That being so, and the bank being on the 
ground, and in touch with the common debtor and his 
property, self interest prompts it to look out for itself 
first. Decisions permitting this, even though the bank 
has technically performed all the instructions given it, 
are objectionable. Perfect good faith on the part of 
the bank requires it, in such a case, to decline the col- 
lection, or to look out primarily for the interests of its 
customers. 

§ 51. Collection of interest. 

We have seen that a bank is sometimes justified in 
accepting payment before maturity of the paper.^'^ If 
the obligation bears interest from date until maturity, 
it is conceived that the bank would not be justified in 
cutting off part of the interest by taking payment be- 
fore maturity. But if the instrument is not so word- 
ed, a diiferent rule applies, as appears from a decision 
that a bank with which a certificate of deposit payable 
on demand, to draw interest only in case it is held until 
after maturity, is left "for collection when due," without 
other instructions as to the time of collection, is not 
liable for six months' interest on the certificate in case 
it collects the face of the certificate immediately, with- 
out interest.^ °^ 



102 See ante, § 44. 

103 Ide V. Bremer County Bank, 73 Iowa, 58, 34 N. W. 749, dis- 
tinguishing Guelick v. National State Bank of Burlington, 56 Iowa, 
434, 9 N. W. 328. 



(90) 



Ch. 3] DUTIES AND DEFAULTS. § 52 

§ 52. Liability of collecting bank for depreciation. 

Any depreciation occurring after the collection is 
made by the collecting banlc, and the funds mingled with 
its general fund, and credit for the amount given to the 
customer, up to the time of a draft or demand by the 
customer for the amount collected, falls upon the col- 
lecting bank, as title to the funds is in it.^"* 

In a case where paper was deposited with a bank for 
collection, and thereafter depreciated in value, the court 
said : "In determining this case, it will be proper first 
to determine whether the deposits made by appellee 
were a bailment only for safe keeping by the bank, or 
were made to be passed to appellee's credit, in the usual 
course of business. If for the former purpose, then 
the appellee must be responsible for any depreciation in 
the value of the funds which occurred before a demand 
was made, if the appellant in good faith preserved the 
identical funds placed in the hands of the bank. If 
the relation of the bank to the appellee was simply that 
of a bailee for safe keeping, and the identical funds 
were preserved, and a loss occurred by depreciation, no 
rule of laAv, principle of reason or justice, can hold the 
bank liable for such a loss. If, on the contrary, the 
deposits -were designed by the parties to have become a 
loan to, or indebtedness by, the bank, the relation of the 
parties would have been that of a debtor and creditor. 
In this case, the evidence shows that the deposits arose 

104 Marine Bank v. Pulton Bank, 2 Wall. (U. S.) 252, 17 L. Ed. 
785. 

When title to proceeds passes to collecting bank, see post, § 121. 

Bank cannot receive depreciated money or currency in payment. 
See ante, § 46. 

(91) 



§ S3 BANK COLLECTIONS. [Ch. 3 

from collections made by the bank for the appellee. 
The latter, at various times, forward^ to the former, 
perhaps without an exception, bills, notes, and checks, 
which, when collected, were placed to the appellee's 
credit. The funds thus received were placed in the 
general funds of the bank, and paid out indiscriminate- 
ly in the course of the business of the bank." On this 
state of facts, the court held that the relation of the 
parties was that of debtor and creditor, and that the 
rules of agency did not apply to the case, and that con- 
sequently the bank "was liable for the full amount of 
the collections, regardless of the depreciation.^"^ 

i 53. Liability of collecting bank as general indorser. 

It is important for the collecting bank to know pre- 
cisely what liability it assumes, or what risks, if any, 
it runs, in indorsing, generally, paper indorsed to it re- 
strictively for collection. 

In the states that have adopted the new negotiable 
instruments law, a bank to which paper has been in- 
dorsed restrictively for collection is liable as a general 
indorser on subsequently indorsing the paper without 
qualification.^"" iis this rule changes the law previous- 

105 Marine Bank of Chicago v. Cliandler, 27 III. 525, 546. To same 
effect see Marine Bank of Chicago v. Rushmore, 28 111. 463. 

106 Negotiable Instruments Laws: Colorado (Laws 1897, e. 64) 
§ 66; Connecticut (Laws 1897, c. 74) § 66; District of Columbia (U. 
S. Stat, at Large 1897-99, c. 47) § 66; Florida (Laws 1897, c. 4524, 
No. 10) § 66; Maryland (Laws 1898, c. 119) § 85; Massachusetts 
(Acts and Resolves 1898, c. 533) § 66; New York (Laws 1897, c. 
612) § 116; North Carolina (Pub. Laws 1899, c. 733) § 66; North 
Dakota (Laws 1899, c. 113) § 66; Oregon (Laws 1899, p. 18) § 66; 

(92) 



Ch. 3] DUTIES AND DEFAULTS. § 53 

ly in force in some of those states/"^ and is contrary to 
the rule in forcedn the federal courts/"^ its importance 
cannot well be overestimated. To avoid the effect of 
this rule, the collecting bank should adopt some special 
form of qualified indorsement negativing a general lia- 
bility. 

Rhode Island CLaws 1899, c. 623, p. 24) § 74; Tennessee (Laws 1899, 
c. 94) § 66; Utah (Laws 1899, c. 83) § 66; Virginia (Acts Assem. 
1897-98, c. 866) § 66; Washington (Laws 1899, c. 149) § 66; Wis- 
consin (Laws 1899, c. 356) '§ 1677-6. See Selover, Neg. Inst. Laws, 
p. 200. 

A general indorser warrants to all subseauent holders in due 
course that the instrument is genuine and in all respects what it 
purports to be. Crosby v. Wright, 70 Minn. 251. 

General indorser warrants that he has title to the paper. Furger- 
son V. Staples, 82 Me. 159. 

He also warrants that all prior parties had capacity to contract. 
Warranty that maker had capacity: Dalrymple v. Hillenbrand, 62 
N. Y. 5: Archer v. Shea, 14 Hun (N. Y.) 493; Kilgore v. Bulkley, 
14 Conn. 362. Warranty that prior indorser had capacity: Pres- 
cott Bank v. Caverly, 7 Gray (Mass.) 217; Ogden v. Blydenburgh, 1 
■Hilt. (N. Y.) 182. 

Such indorser also warrants that the instrument is, at the time 
of the indorsement, valid and subsisting, and engages that on due 
presentment it shall be accepted or paid, or both, as the case may 
be, according to its tenor, and that if it be dishonored, and the 
necessary proceedings in dishonor be duly taken, he will pay the 
amount thereof to the holder, or to any subsequent indorser who 
may be compelled to pay it. Ankeny v. Henry, 1 Idaho, 229. 

All of the above rules have been adopted in the negotiable in- 
struments laws in the sections last above cited. 

Indorsement of forged paper, see post, § 164. 

lOT National Park Bank v. Seaboard Bank, 114 N. Y. 28; La 
Farge v. Kneeland, 7 Cow. (N. Y.) 456; Mowatt v. McLelan, 1 
Wend. (N. Y.) 173; Herrick v. Gallagher, 60 Barb. (N. Y.) 566. 

108 United States v. American Exchange Nat. Bank, 70 Fed. 232. 

(93) 



§ 54 BANK COLLECTIONS. [Ch. 3 

§ 54. Duties as to paper sent to a correspondent — Forward- 
ing instructions and information. 

It is the duty of the initial collecting bank to transmit 
to its correspondent any specific instructions or infor- 
mation given by the owner on leaving the paper for col- 
lection."^ 

In a very pertinent Minnesota case on this point it 
appeared that the initial bank was intrusted with a note 
indorsed by one S. S. Eaton, who lived at Nininger, 
Minnesota. In view of the fact that there was another 
S. S. Eaton, who lived in St. Paul, iliunesota, where 
such bank had its place of business, the owner specially 
informed the bank that the indorser was the S. S. 
Eaton who lived in Nininger; but the bank failed to 
give this information to its correspondent at St. An- 
thony, Minnesota, to whom it forwarded the note. The 
latter bank consequently failed to notify the proper 
Eaton, whereby he was discharged. It was held, very 
properly, that the initial bank was liable for the loss 
sustained.^ ^^ 

It is also the duty of the initial bank, on transmitting 
a collection to a correspondent in another state, to no- 
tify it of the laws and customs governing protest in the 
place where the contract was made ; in default of which 
it will be liable for a failure of such correspondent to 
comply with such laws and customs.^^^ 

109 Mechanics' Bank v. Earp, 4 Rawle (Pa.) 384; Borup v. Nin- 
inger, 5 Minn. 523 (Gil. 417, 437). 

110 Borup V. Ninlnger, 5 Minn. 523 (Gil. 417, 437). 

111 Allen V. Merchants' Bank, 22 Wend. (N. Y.) 215. 

(1)4) 



<:;h. 3] DUTIES AND DEFAULTS. § 56 

§ 55. Fraud and mistake. 

If tbe collecting- bank perpetrates any fraud on its 
customer, or overreaches him, or secures any unjusti- 
fiable advantage over him by means of its relation and 
the facilities for fraud which it offers, it is liable for 
the damages sustained."^ The relation is a confiden- 
tial one, and banks are held to a strict accountability 
where fraud is shown.^^^ The bank is also held strictly 
accountable for careless mistakes, such as mistaking 
the date of a note plainly dated.^^* 

Where a bank receives from the debtor's agent the 
money with which to pay a note left for collection, and 
by mistake returns the wrong note to such agent, and 
thereafter the right note is presented to the debtor by 
the owner thereof, and is paid, the debtor may maintain 
an action against the bank, after returning the other 
note, and demanding repayment.^^^ The question of 
payment by mistake and recovery back of such payments 
will be considered later."® 

§ 56. Negligence a question of fact — Province of court and 
jury. 
The question of the negligence of the collecting bank 

112 Commercial Bank v. Red River Valley Nat. Bank, 8 N. D. 382, 
79 N. W. 859; Bank of New Hanover v. Kenan, 76 N. C. 340; Dern 
V. Kellogg, B4 Neb. 560, 74 N. W. 844; Finch v. Karste, 97 Micli. 20, 
56 N. W. 123. 

113 See cases cited in last preceding note. 

in Bank of Delaware County v. Broomhall, 38 Pa. St. 135. 
Mistake as to time of presentment and days of grace, see post, 
§ 64. 

115 Andrews v. Suffolk Bank, 12 Gray (Mass.) 461. The bank 
cannot in such case take advantage of the negligence of the debtor's 

agent in accepting the wrong note. Id. 

116 See post, §§ 128, 129, 166-168. 

(95) 



§ 56 BANK COLLECTIONS. [Ch. 3 

is usually one of fact for the jury."' On this point, 
the court, in a well-considered Maryland case,"^ says: 
"It is true beyond doubt that in cases of this character 
a court may, by proper legal inference from the nature 
of the undertaking, determine in general the things re- 
quired to be done in performing it, and that the failure 
to do any of the things so required to be done Avould 
amount to negligence; but it has no such power when 
the question as to due diligence is made to depend on a 
state of facts and circumstances of a character so un- 
usual that they could not have been contemplated by 
the parties to the undertaking, and to which no settled 
rule of law can be applied. The principle for testing 
the force of this objection (to an instruction submitting 
the question to the jury) is, we think, correctly stated 
in the case of Baltimore & Ohio R. Co. v. Worthington, 
21 Md. 275. It was there said, a majority of the court 
concurring, 'that negligence, in the ordinary legal sense, 
imports an absence or want of such care as the law re- 
quires in the performance of any given undertaking, and, 
generally speaking, is a fact, the finding of which is for 
the jury, although the court may declare the legal na- 
ture and extent of the duties incident to the undertaking, 
as well as those facts which, by inference of law, are 
essential to its performance ;' and again, that the court 
may determine the question in cases 'where the negli- 

117 Sahlien v. Bank of Lonoke, 90 Tenn. 221; 16 S. W. 373; Na- 
tional Bank v. City Bank, 103 U. S. 668; Diamond Mill Co. v. 
Groesbeeck Nat. Bank, 9 Tex. Civ. App. 31, 29 S. W. 169. 

Ratification of negligence a question for jury, see post, § 57. 

lis Merchants' Bank of Baltimore v. Bank of Commerce of New 
York, 24 Md. 12, 53. 

(96) 



Ch. 3] DUTIES AND DEFAULTS. § 57 

gence alleged may be deduced from the absence of any 
fact which the law of the contract presupposes, and re- 
quires should be shown.' " 

Pursuant to the general rule first above "stated, it has 
been held that, where a clerk of the collecting bank had 
inquired of one of two holders of the note as to the resi- 
dence of the makers, A^ithout obtaining the required in- 
formation, the question whether it was negligence not 
to inquire of the other should have been submitted to 
the jury.^i® Where there is no dispute as to the facts, 
the question of negligence is one of law for the court.^^" 

§ 57. Waiver of negligence of collecting bank. 

The negligence of a collecting bank, like the negli- 
gence of any other bailee, may be waived or ratified.^^^ 
Thus, the owner of notes may waive delay of the collect- 
ing bank in enforcing them by acquiescing in such delay 
with full knowledge thereof.^ ^^ But the mere fact that 
the owner of a note left for collection permitted the 
cashier of defendant bank to hand to him or his attorney 
a second note, accompanied with a statement that the 
original was lost, and the further fact that plaintiff re- 
tained the second note some little time before rejourning 
it to the bank, is not conclusive evidence of a ratifica- 

iisAyrault v. Pacific Bank, 29 N. Y. Super. Ct. 337, affirmed in 
47 N. Y. 570. 

120 Selz V. Collins, 55 Mo. App. 55. 

121 See cases cited in notes 122-124, infra. See, also, post, § 76. 

122 Toole V. Durand, 7 Rob. (La.) 363. ' ' 
Waiver of negligence in collecting on forged indorsement of 

payee's name, see post, § 169. 

Waiver of negligence resulting in discharge of Indorser, see 
post, § 76. 

(97) 



§ 57 BANK COLLECTIONS. [(Jh. 3 

tion of the bank's negligence, but is merely some evi- 
dence of it; so that a verdict that there was no ratifica- 
tion would not be disturbed as against the evidence.^^^ 
Full knowledge of all the material facts is essential to 
an effective waiver or ratification.^^* 

So, it has been held that the acceptance by the princi- 
pal of the proceeds of a sight draft sent to defendant 
bank together with a time draft and a bill of .lading, 
Avith instructions to deliver such bill only -on payment 
of the sight draft and acceptance of the time draft, is 
not a ratification of the act of the bank in delivering 
the bill of lading without procuring the acceptance of 
the time draft, if it appears that the principal had no 
knowledge that the bill of lading had been delivered with- 
Aut such acceptance, and that the bill of lading was sur- 
rendered on an understanding between the bank and the 
drawee that the amount due from the drawee to the 
principal would be ascertained by some future adjust- 
ment.^^^ 

123 Roanoke Nat. Bank v. Hambrick, 82 Va. 135. 

124 Bryant v. Moore, 26 Me. 84 ; Wheeler v. Northwestern Sleigh 
Co., 39 Fed. 347; Bennecke v. Insurance Co., 105 U. S. 355; Baldwin 
V. Burrows, 47 N. Y. 199; Holm v. Bennett, 43 Neb. 808, 62 N. W. 
194; Davis v. Talbot, 137 Ind. 235, 36 N. B. 1098; Dean v. Bassett, 
57 Cal. 640; Humphrey v. Havens, 12 Minn. 298 (Gil. 19'6); Town of 
Madison v. Newsome, 39 Fla. 149, 22 So. 270. 

12^ Oxford Lake Line v. First Nat. Bank of Pensacola, 40 Fla. 349, 
24 So. 480. 

(98) 



Ch. 4J 



CHARGING PARTIES. 



CHAPTER IV. 

TAKING STEPS NECESSARY TO CHARGE PARTIES TO PAPER. 

§ 58. General rules. 

59. Bank Is a "holder" for purposes of collection. 

60. Presentment for acceptance. 

61. Excuses for failure to present for acceptance. 

62. Bank liable for taking acceptance not according to 

tenor of bill. 

63. Presentment for payment. 

64. Time of maturity and days of grace. 

65. Paper payable at bank. 

66. Checks. 

67. Effect of custom. 

68. Protest. 

69. Excuses and defenses. 

70. Notice of dishonor. 

71. What indorsers entitled to notice from bank. 

72. Owner may sue bank without first suing indorser. 

73. Enforcement of paper taken in payment. 

74. Return of dishonored paper. 
T5. Effect of custom. 

76. Ratification and waiver of negligence of bank. 

The collecting bank must take all steps necessary and proper 
to secure to the owner his remedies against the other parties 
to the paper. For the purpose of taking these steps, the bank 
is deemed to be a "holder" of the paper. 

The bank must make due presentment for acceptance in all 
proper cases, and is liable for a failure to do so. It is charged 
with knowledge of the general rules of law relating to pre- 
sentment. It is not excused from failing to present for ac- 
ceptance by its own custom of not presenting certain kinds 
of paper, nor by the insolvency of the drawee. The bank is 

(99) 



BANK COLLECTIONS. [Ch. 4 

liable to the holder if it takes an acceptance not according to 
the tenor of the bill. 

The bank must present paper for payment in all proper 
cases, and is liable for any damages caused by a failure to pre- 
sent at maturity.. The bank is liable for careless mistakes as 
to the time of maturity and days of grace, but is not liable for 
a mistake of judgment in cases where the law is doubtful, 
and the question has not been decided by the courts. The bank 
need not make formal presentment of paper payable at the 
bank if the paper is there at maturity, and no one is there 
to make payment. Checks should be presented within a rea- 
sonable time; what is a reasonable time depending upon the 
circumstances of each case. The action of the bank at vari- 
ance with the general rules relative to presentment may be 
justified by a general custom of banks. 

The bank must duly protest the paper after dishonor, and 
the word "protest" includes all steps necessary to charge the 
parties. 

The bank must give due notice of dishonor to the proper 
parties, and is charged with knowledge of the law relating to 
notice of dishonor. Actual notice to an indorser does not sup- 
ply the want of proper formal notice by the bank. The bank 
need notify only its principal or immediate indorser; but the 
rule is otherwise in some states, 

Where an indorser has been discharged by failure of the 
bank to take the proper steps to charge him, the owner may 
sue the bank without first suing the indorser. 

Where the bank takes other paper in payment, it must use 
due diligence to enforce the payment thereof. 

The bank should seasonably return all dishonored paper un- 
less notified to the contrary, so that the owner may take such 
measures as he sees fit for his further security. The bank 
may, however, be justified by a general custom in retaining 
paper after dishonor. 

The negligence of the bank in failing to take proper steps to 
charge the parties may be waived, but full knowledge of the 
facts is essential to a complete waiver or ratification. Meas- 
(100) 






Ch. 4] CHARGING PARTIES. § 58 

ures taken by the owner to secure or protect himself from the 
neglig^enoe of the bank do not amount to a waiver or ratifi- 
cation of such negligence. 

^ 58. General rules. 

A collecting bank is charged with the duty of taking 
all steps necessary and proper to charge all parties to 
the paper, so that the owner may obtain the full benefit 
of the obligation against the parties primarily liable, 
or, on their default, against all parties secondarily lia- 
ble.i 

As was said in a well-considered Connecticut case :^ 
^'The general duty of an agent who receives for collec- 
tion a bill of exchange is to use due diligence in present- 
ing the same for acceptance, and in presenting it for 
payment if it has been accepted, and to give the holder 
and other parties to the paper, by the next day's post, 
the notices of dishonor required by law in case accept- 
ance or payment is refused, and to give to his principal 
any special notice which is required by the terms of the 

iWest V. St. Paul Nat. Bank, 54 Minn. 466. 56 N. W. 54; Borup 
V. Nininger, 5 Minn. 523 (Gil. 417) ; Jagger v. National German 
American Bank of St. Paul, 53 Minn. 386, 55 N. W. 545; Bank of 
New Hanover v. Kenan, 76 N. C. 340; Merchants' & Manufacturers' 
Bank v. Stafford Nat. Bank, 44 Conn. 565; Tyson v. State Bank of 
Indiana, 6 Blackf. (Ind.) 225; Smedes v. Bank of tJtica, 20 Johns. 
(N. Y.) 372, 3 Cow. 662; Bank of TJtica v. McKinster, 11 "Wend. 
(N. Y.) 473; Allen v. Suydam, 20 Wend. (N. Y.) 321; Pabens v. 
Mercantile Bank, 23 Pick. (Mass.) 330; Bank of Washington v. 
Triplett, 1 Pet. (U. S.) 25. 

2 Merchants' & Manufacturers' Bank y. Stafford Nat. Bank, 44 
Conn. 565. See, also. Walker v. Bank of New York State, 5 Seld. 
(N. Y.) 582; Hamilton v. Cunningham, 2 Brock. 350, Fed. Cas. No. 
5,978. 

(101> 



Wum> 



§ 59 BANK COLLECTIONS. [Ch. 4 

instructions to the agent, or of the contract which the 
agent has entered into with his principal. The agent 
is also required to protest, in case of nonacceptance or 
nonpayment, if protest is not forbidden, and to send the 
protest to the holders." 

The bank must use reasonable skill and care in taking 
the steps necessary to charge the parties to the paper,^ 
and the retention of a check by a collecting bank for 
several dayfe without presentation or notice of non- 
payment, or any efforts to collect, renders it liable 
for any resulting loss.* ^ 

We have seen that the efforts of the bank must be di- 
rected towards obtaining payment of the obligation in 
money,^ and consequently all steps taken by the bank 
must tend in that direction. 

§ 59. Bank is a "holder" for purposes of collection. 

The extent of the duties and liabilities of the collect? 
ing bank as to taking the steps necessary to charge the 
parties to the paper is epitomized in the rule that, for 
the purposes of presentment, protest, and notice, the 
bank is deemed to be a "holder" of the paper.'' On this 

3Bartlett v. Isbell, 31 Conn. 296, 299; Tiernan v. Commercial Bank 
of Natchez, 7 How. (Miss.) 648; Bank of Delaware County v. 
Broomhall, 38 Pa. St. 135; La Banque Jacciues-Cartier v. La Cor- 
poration de Limoilou, 17 Rap. Jud. Que. C. S. 211. See, also, ante, 
§ 35. 

-1 Bank of New Hanover v. Kenan, 76 N. C. 340. 

See, also, West Branch Bank v. Pulmer, 3 Pa. St. 399; Ivory v. 
Bank of State, 36 Mo. 475; Costin v. Rankin, 3 Jones (N. C.) 387. 

5 See ante, § 46. 

State Bank of Troy v. Bank of Capitol, 41 Barb. (N. Y.) 343, 27 
How. Pr. 57, 17 Abb. Pr. 364; Mead v. Bugs, 5 Cow. <N. Y.) 303; 
(102) 



Ch.' 4] CHARGING PARTIES. | 60 

point, the supreme court of (Connecticut uses these 
words : "Such agents are recognized in the law as 
'holders for collection;' for all the purposes of demand 
and notice and the exercise of due diligence after dis- 
honor they are 'holders' of the note ; and the law imposes 
upon them the duty of doing all that the owner would 
be required to do for the protection of his rights, and 
makes them liable over to the owner for default in that 
duty."'' 

§ 60. Presentment for acceptance. 

For a statement of the general rules determining the 
kind of paper that requires presentment for acceptance, 
and all other general rules regarding presentment for 
acceptance which apply to any holder as well as to a 
bank holding for collection, the reader is referred to the 
general works on bills and notes, or on negotiable in- 
struments.^ 

For the purposes of this work, a collecting bank is 
presumed to know the general rules of law governing 
presentment, protest, and notice, — a knowledge imputed 
alike to all persons dealing in commercial paper. ^Ve 

Howard v. Ives, 1 Hill (N. Y.) 263; Bank of United States v. 
Davis, 2 Hill (N. Y.) 451; Sheldon v. Benham, 4 Hill (N. Y.) 129; 
Farmers' Bank of Bridgeport v. Vail, 21 N. Y. 487, 488; Ogden v. 
Dobbin, 2 Hall (N. Y.) 129; Burnham v. Webster, 19 Me. 232; Free- 
man's Bank v. Perkins, 18 Me. 292; Warren v. Oilman, 17 Me. 360: 
Blakeslee v. Hewett, 76 Wis. 341; Manchester Bank v. Fellows, 
28 N. H. 302. 

7 Bartlett v. Isbell, 31 Conn. 296, 299. 

s For the rules adopted in the new negotiable instruments laws, 
see the author's treatise on those laws, chapter 7 (1900; Keefe- 
Davidson Law Book Company, St. Paul, Minn.). 

(103) 



§ 60 BANK COLLECTIONS. [Cll. 4 

shall consider here, however, the cases where the courts 
have made specific application of these rules to collect- 
ing banks. From a survey of these cases, it seems that 
banks do not always know these rules, or, at least, that 
they do not always follow them. For example, a bank 
should know that a bill stating no time of payment is 
payable on demand,® and consequently need not be pre- 
sented for acceptance;^" so that, if it fails to present 
such a bill for payment in time, but, instead, presents it 
for acceptance, and sends for instructions as to pro- 
test, and loss results, it is liable for the damages sus- 
tained.^^ So, too, a collecting bank must present for 
acceptance a sight draft on a person having an office in 
the same city, on the same or on the next day after its 
yeceipt, though the bank does not know that the drawee 
is embarrassed.^^ 

Where a bank, sued for damages for failure to present 
a draft, defends on the ground that the draft was pre- 
sented by telephone, it has the burden of proving that 
fact.13 

9 First Nat. Bank of Davenport v. Price, 52 Iowa, 570, 3 N. W. 
639; Keyes v. Fenstermaker, 24 Cal. 329; Bacon v. Page, 1 Conn. 
404; Ervin v. Brooks, 111 N. C. 358; Messmore v. Morrison, 172 Pa. 
St. 200. 

I'J First Nat. Bank of Davenport v. Price, 52 Iowa, 570, 3 N. W. 
639; Lester v. Given, 8 Bush (Ky.) 357; Townsley v. Sumrall, 2 
Pet. (U. S.) 170, 178; Swee+ v. Swift, 65 Mich. 90; Fall River Union 
Bank v. Willard, 5 Mete. (Mass.) 216. 

31 First Nat. Bank of Davenport v. Price, 52 Iowa, 570, 3 N. W. 
639. 

na.tification of act of bank, see post, § 76. 

12 Citizens' Nat. Bank of Lawreuceburg v. Third Nat. Bank of 
Greensburg, 19 Ind. App. 69, 49 N. E. 171. 

13 Gray's Harbor Commercial Co. v. Continental Nat. Bank, 74 
Mo. App. 633. 

(104) 



•Oh. 4] CHARGING PARTIES. § 61 

§ 61. Excuses for failure to present for acceptance. 

The collecting bank is not excused from liability for 
negligence in not presenting a sight draft for acceptance 
by the fact that the hona fide indorsee, suing for the 
negligence, failed to inquire whether the drawer had 
a right to draAv, or had reason to expect that the draft 
would be paid;^* nor by the fact that, at the time the 
draft was drawn, such indorsee knew that the drawer 
was indebted to the drawee, and that there was no rea- 
sonable ground to believe that the draft would be ac- 
cepted ;^^ nor by a custom of its own of not presenting 
for acceptance drafts on a certain concern, when sent 
by plaintiff for collection ;i^ nor by the insolvency of 
the drawee, the draft having been indorsed to plaintiff.^^ 

In a recent case, where the collecting bank, sued for 
negligence in not presenting a sight draft for accept- 
ance, attempted to defend on the ground that the 
drawer had no funds with the drawee, and was insol- 
vent and without credit, the court said: "The insol- 
vency of the drawer would not necessarily have pre- 
vented the collection from the drawer. Insolvency does 
not mean a total want of property. The insolvent debt- 
or may yet have means to secure or pay the diligent 
creditor. The answer does not negative the possibility 

1* Citizens' Nat. Bank of Lawrenceburg t. Third Nat. Bank of 
-Greensburg, 19 Ind. App. 69, 49 N. B. 171. 

15 Citizens' Nat. Bank of Lawrenceburg v. Third Nat. Bank of 
Greensburg, 19 Ind. App. 69, 49 N. E. 171. 

18 Citizens' Nat. Bank of Lawrenceburg v. Third Nat. Bank of 
-Greensburg, 19 Ind. App. 69, 49 N. E. 171. 

If Citizens' Nat. Bank of Lawrenceburg v. Third Nat. Bank of 
-Greensburg, 19 Ind. App. 69, 49 N. B. 171. 

(105) 



§ 62 BANK COLLECTIONS. [Ch. 4- 

that the drawer might have secured the assistance of 
friends, or have himself secured the appellee ( own- 
er). "i^ 

§ 62. Bank liable for taking acceptance not according to 

tenor of bill. 

Banks have also been known to forget or ignore the rule 
that an acceptance must folloAv the tenor of the bill ;^® 
and the collecting bank is liable for any loss occasioned 
by taking an acceptance not according to the tenor of 
the bill, as where it takes the acceptance of a corpora- 
tion by its treasurer in his representative capacity only, 
on a bill drawn by the corporation on him personally, 
instead of treating the bill as dishonored, and giving no- 
tice accordingly."" 

Conversely, it is negligence for a bank receiving for 
' collection a draft on the secretary of a corporation as 
such, which draft was considered and known by it to 
be a draft on the corporation, to take the personal ac- 
ceptance of the secretary on his refusal to accept for 

IS Citizens' Nat. Bank of Lawrenceburg v. Third Nat. Banlc of 
Greensburg, 19 Ind. App. 69, 49 N. E. 171. 

19 See Lindley v. First Nat. Bank of Waterloo, 76 Iowa, 629; 
Brinkman v. Hunter, 73 Mo. 172; Murdock v. Mills, 11 Mete. 
(Mass.) 5. 

20 Walker v. State Bank, 9 N. Y. 582, affirming 13 Barb. 636. 
The agent is not personally liable in such case, in the absence 

of a showing of absolute want of authority in fact to use the 
corporate name. Id. On this point, see, also, Dusenbury v. Elli^, 
3 Johns. Cas. (N. Y.) 70; White v. Skinner, 13 Johns. (N. Y.) 307. 
The doctrine seems to have been modified in later cases. See 
White V. Madison. 26 N. Y. 123; Dung v. Parker, 52 N. Y. 499; 
Noe V. Gregory, 7 Daly (N. Y.) 283. See, also. West London Com- 
mercial Bank v. Kitson, 13 Q. B. Div. 366. 
(106) 



Ch. 4] CHARGING PARTIES. § 63- 

the corporation, instead of giving immediate notice of 
dishonor.^i 

§ 63. Presentment for payment. 

Tlie general rules governing presentment for payment 
are the same, whether the holder is a bank or not, and 
therefore the same considerations apply here as apply 
with regard to presentment for acceptance, and the read- 
er is referred to the general works on bills and notes 
or on negotiable instruments for a statement of such 
rules.^^ 

The collecting bank must, hoAvever, present the paper 
for payment in all proper cases, and is liable for any 
damages caused by a failure to present at maturity.^* 
By failing to demand payment in proper time, the bank 
makes the bill its own, and becomes liable for the 
amount thereof to the depositor.^* 

The collecting bank is bound to know the law relating- 
to presentment and demand as to paper left for collec- 
tion, and is hence liable for any loss sustained where 

21 Exchange Nat. Bank of Pittsburgh v. Third Nat. Banh: of New 
York, 112 U. S. 276, 292, 5 Sup. Ct. 141, 28 L. Ed. 722; 'Tradesman's 
Nat. Bank of Pittsburgh v. Third Nat, Bank of New York, 112 U. 
S. 293, 5 Sup. Ct. 149, 28 L. Ed. 728. See, also. Hardy v. Pilcher, • 
57 Miss. 18. 

22 For the rules adopted in the new negotiable instruments laws, 
see the author's treatise on those laws, chapter 11 (1900; Keefe- 
Davidson Law Book Company, St. Paul, Minn.) 

23 Pabens v. Mercantile Bank, 23 Pick. (Mass.) 330, 34 Am. Dec. 
59; Steele v. Russell, 5 Neb. 211; Coghlan v. Dinsmore, 22 N. Y. 
Super. Ct. 453; Kirkham v. Bank of America, 26 App. Div. 110, 49 
N. Y. Supp. 767, affirmed in 165 N. Y. 132, 58 N. E. 753. See, also, 
cases cited in note 1, supra. 

24 Bank of Washington v. Triplett, 1 Pet. (TJ. S.) 25, 31. 

(107) 



§ 64 BANK COLLECTIONS. [Ch. 4 

it expressly instructed its notary, at maturity, not to 
present the paper or make demand at the late residence 
of the obligor, who died at or before maturity of the 
paper, but to protest it, which was done, thereby releas- 
ing an indorser.^^ 

The bank is, as we have seen, a "holder" for the tak- 
ing of all steps necessary to charge the parties to the 
paper,^^ and hence is a "holder," within the rule that a 
presentment for payment must be made by the "holder," 
or by some person authorized to receive payment on his 
behalf. This is a general rule of the law merchant,^^ 
as well as the rule incorporated into the negotiable in- 
struments laws.^* 

§ 64. Time of maturity and days of grace. 

It sometimes happens that the collecting bank renders 
itself liable to the owner through some negligence or 
mistake with regard to the maturity of the paper and 
days of grace. 

25 Huff V. Hatcla, 2 Disn. (Ohio) 63. 

26 See ant§, § 59. 

2' Preeman's Bank v. Perkins, 18 Me. 292; Blakeslee v. Hewett, 
76 Wis. 341, and other cases cited in note 6, supra. 

See, also. Cole v. Jessup, 10 N. Y. 96; Baer v. Leppert, 12 Hun 
(N. Y.) 516; Sussex Bank v. Baldwin, 17 N. J. Law, 487. 

2s Negotiable Instruments Laws: Colorado (Laws 1897, c. 64) § 
72, suhd. 1; Connecticut (Laws 1897, c. 74) § 72, subd. 1; District 
of Columbia (U. S. Stat, at Large -1897-99, c. 47) § 72, subd. 1; 
Florida (Laws 1897, c. 4524, No. 10) § 72, subd. 1; Maryland (Laws 
1898, c. 119) § 91, subd. 1; Massachusetts (Acts and Resolves 1898, 
e. 533) § 72, subd. 1; New York (Laws 1897, c. 612) § 132, subd. 1; 
North Carolina (Pub. Laws 1899, c. 733) § 72, subd. 1; North Da- 
kota (Laws 1899, c. 113) § 72, subd. 1; Oregon (Laws 1899, p. 
18) § 72, subd. 1; Rhode Island (Laws 1899, c. 623, p. 24) § 80, 
(108) 



Ch. 4] CHARGING PARTIES. § 64 

As a check payable at a future date is a bill of ex- 
change, and entitled to grace,^® it is negligence for a 
bank having such check for collection to present the 
same for payment on the day named therein, without 
grace.^" A collecting bank is also liable for the dam- 
ages sustained by its carelessness in mistaking the date 
of a note, and consequently presenting it for payment 
and protesting it ten days before it was due, thereby dis- 
charging the indorser.^^ 

It is often a matter of great difficulty to determine 
the proper course to pursue with regard to a particular 
instrument, and the collecting bank is not held to a 
strict knowledge of the law as to days of grace on a bank 
post note, where, at the time the note fell due, the ques- 
tion had not been judicially determined, and the prac- 
tice of business men and bankers was not uniform in 
the matter, and hence is excusable for presenting it for 
payment without grace, though it was held to be entitled 
to grace in a subsequent decision of the highest court 
in the state.^^ 

So, also, a bank Avith which a note payable on Sunday 

subd. 1; Tennessee (Laws 1899, e. 94) § 72, subd. 1; Utah (Laws 
1899, c. 83) § 72, subd. 1; Virginia (Acts Assem. 1897-98, c. 866) § 
72, subd. 1; Washington (Laws 1899, c. 149) § 72, subd. 1; Wis- 
consin (Laws 1899, c. 356) § 1678-2, subd. 1. 

29 Ivory V. State Bank, 36 Mo. 475, 88 Am. Dee. 150; Merchants' 
Bank v. Woodruff, 6 Hill (N. Y.) 174; Hawley v. Jette, 10 Or. 31; 
Brown v. Lusk, 4 Yerg. (Tenn.) 210; Harrison v. Nicollet Nat. 
Bank of Minneapolis, 41 Minn. 488, 5 L. R. A. 746. 

30 Ivory V. State Bank, 36 Mo. 475, 88 Am. Dec. 150. 

31 Bank of Delaware County v. Broomhall, 38 Pa. St. 135. 

32 Mechanics' Bank at Baltimore v. Merchants' Bank at Boston, 
6 Mete. (Mass.) 13, 32. But see Georgia Nat. Bank v. Henderson, 
46 Ga. 487, 12 Am. Rep. 590. 

(109) 



§ 64 BANK COLLECTIONS. [Ch. 4 

was deposited before maturity for collection is not 
chargeable with negligence in not protesting it till the 
Thursday after its maturity, though such delay dis- 
charged the indorser, where the confused condition of 
the statute relating to holidays and days of grace ren- 
dered the proper course for the bank to pursue very 
doubtful, and the question had not been judicially de- 
termined.^^ But a bank with which a bill is left for 
collection is liable for negligence in presenting it for 
payment and protesting it on the day of maturity with- 
out grace, whereby the indorser was discharged, though 
it was doubtful whether the instrument was a bill or a 
mere check, where the indorser had expressly notified 
the bank that the instrument was entitled to grace; 
since, had it been a mere check, and not entitled to 
^race, such action on the part of the indorser would have 
been a waiver by him of presentment on the day of ma- 
turity.^* The duties and liabilities of a collecting bank 
as to the matters just considered are much more sim- 
plified and defined in the states that have abolished days 
of grace entirely. This is the case in most of the states 
that have adopted the negotiable instruments laws.^^ 

33 Morris v. ■Union Nat. Bank of Sioux Falls, 13 S. D. 329, 83 N. 
W. 252. The indorser on the note involved in this case was held 
to have been discharged by the delay, in Morris v. Bailey, 10 S. D. 
507, 74 N. W. 443. 

3* Georgia Nat. Bank v. Henderson, 46 Ga. 487. See Henderson 
v. Pope, 39 Ga. 361, where the instrument in question was held to 
be a bill, and entitled to grace. 

33 Negotiable Instruments Laws: Colorado (Laws 1897, c. 64) § 
85; Connecticut (Laws 1897, c. LXXIV) § 85; District of Columbia 
(U. S. Stat, at Large, 1897-99, c. 47) § 85; Florida (Laws 1897, c. 
4524, No. 10) § 85; Maryland (Laws 1898, c. 119) § 104; New York 

(110) 



•Ch. 4] CHARGING PARTIES. § 65 

§ 65. Paper payable at bank. 

A note payable at a particular bank at a specified 
time is duly dishonored for nonpayment if, at the time 
it is due and payable, it is at the bank for collection, and 
no one calls to make payment; and hence, the bank is 
not liable for not making formal presentment and de- 
mand of payment.''^ Nor is it necessary in case of a 
note payable at a ba,nk, and in its hands for collection 
at the time it is due, that the bank's books be examined 
to see if the maker had sufficient funds in the bank at 
that time to pay the note, no one having called to pay 
it.^'^ The fact that there were no funds of the maker in 
the bank at maturity of a note payable there, and in 
possession of the bank for collection at maturity, ex- 
cuses presentment, demand, and refusal of payment.^* 

(Laws 1897, c. 612, Amendments in Laws 1898, c. 336) § 145; North 
Dakota (Laws 1899, c. 113) § 85; Oregon (Laws 1899, p. 18) § 85; 
Tennessee .(Laws 1899, c. 94) § 85; XJtali (Laws 1899, c. 83) § 85; 
Virginia (Acts Assem. 1897-98, c. 866) § 85; Washington (Laws 
1899, c. 149) § 85; Wisconsin (Laws 1899, c. 356) § 1678-15. 

In Rhode Island the negotiable instruments law gives three days' 
grace on sight drafts (Laws 1899, c. 623, § 93). In North Carolina 
the law gives three days' grace on notes, acceptances and sight 
drafts (Pub. Laws 1899, c. 733, § 197). In Massachusetts the nego- 
tiable instruments law originally abolishing days of grace (Acts 
and Resolves 1898, c. 533, § 85) has been amended (Act March 6, 
1899) so as to allow three days' grace on sight drafts. 

3e state Bank v. Napier, 6 Humph. (Tenn.) 269; Ogden v. Dobbin, 
2 Hall (N. Y.) 129; Polger v. Chase, 18 Pick. (Mass.) 63; Goodloe v. 
Godley, 13 Smedes & M. (Miss.) 233; Bank of United States v. 
Carneal, 2 Pet. (U. S.) 543. 

3T state Bank v. Napier, 6 Humph. (Tenn.) 269; Bank of United 
States V. Carneal, 2 Pet. (U. S.) 543. 

3s Hallowell v. Curry, 41 Pa. St. 322 ; Jenks v. Doyelstown Bank, 
4 Watts & S. (Pa.) 505; Rahn v. Philadelphia Bank, 1 Rawle (Pa.) 

(Ill) 



§ 66 BANK COLLECTIONS. [Ch. 4 

In the absence of evidence to the contrary, it will be 
presumed that a demand note payable at a bank was at 
the bank, and that some o£ficer of the bank was in at- 
tendance tj receive payment.^® But where a letter con- 
taining an acceptance specially payable at a particular 
bank was sent there, and, though received in due time, 
and actually in the bank, was lost by reason of having 
fallen through a crack in the cashier's desk, the physical 
presence of the bill in the bank does not amount to a 
presentment for payment, though the acceptor had no 
funds there and did not call at the bank.*" 

Where a note held by a bank for collection is made 
payable at another bank on a date specified in the note, 
and not "on or before" a specified date, the holder bank 
is not obliged to have the note at the bank of payiaent 
before the date fixed for payment.*^ 

§ 66. Checks. 



As a customer's bank check is not intended for gen- 
eral circulation as a medium of exchange, it should be 
presented for payment witli all the despatch and dili- 
gence consistent with the circumstances of the case and 
the transaction of other commercial business.*^ 



335; Phipps v. Chase, 6 Mete. (Mass.) 492; Bank of United States 
V. Carneal, 2 Pet. (U. S.) 543; Fullerton v. Bank of United States, 
1 Pet. (U. S.) 617; Bank of United States v. Smith, 11 Wheat. (U. 
S.) 177; Sanderson v. Judge, 2 H. Bl. 509; Bailey v. Porter, 14 Mees. 
& W. 44. 

39 Folger V. Chase, 18 Pick. (Mass.) 63. This was an action 
against an indorser. 

40 Chicopee Bank v. Philadelphia Bank, 8 Wall. (U. S.) 641, 648. 
ii Bank of Montreal v. Ingerson, 105 Iowa, 349, 75 N. W. 351. 

42 Western Wheeled Scraper Co. v. Sadilek, 50 Neb. 105, 69 N. 
(112) 



Ch. 4] CHARGING PARTIES. §. 66 

The general rule is that a check must be presented for 
payment within a reasonable time after its receipt for 
collection;*^ but what constitutes a reasonable time de- 
pends generally on the circumstances of each case.** A 
bank should present local checks on the day of their re- 
ceipt, otherwise it Avill be liable to the drawer for any 
loss sustained by the failure of the draAvee bank at the 
close of such day.*° As to out-of-town checks, the bank 
must use reasonable diligence, and when a bank, on the 
day it receives checks on a bank in another city, only 
twenty-seven miles distant, and connected by telegraph, 
telephone, and railroad, without informing such bank 
or inquiring if the checks Avere good, sent them to a bank 
in a third city, Avhich in turn sent them to a bank in a 
fourth city, by Avhich they were sent to the drawee bank 
five days after they were received by the first bank, and 

W. 765; First Nat. Bank of Wymore v. Miller, 37 Net). 500, 55 N. 
W. 1064. 

43 Morris v. Eufaula Nat. Bank, 106 Ala. 383, 18 So. 11; First Nat- 
Bank of AVymore v. Miller, 37 Neb. 500, 55 N. W. 1064; Bank of 
New Hanover v. Kenan, 76 N. C. 340. 

4,4, For presentroents held to have been made with reasonable 
diligence, see AVoodrulf v. Plant, 41 Conn. 344; First Nat. Bank of 
Grafton v. Buckhannon Bank of AVest Virginia, 80 Md. 475, 27 L. R. 
A. 332; Nebraska Nat. Bank of Omaha v. Logan, 35 Neb. 182; 
Rosenthal v. Ehrlicher, 154 Pa. St. 396; Lloyd v. Osborne, 92 
AVis. 93. 

For cases holding that there was unreasonable delay in present- 
ment, see Morris v. Butaula Nat. Bank, 106 Ala. 383. 18 So. 11; 
Anderson v. Rodgers, 53 Kan. 542, 27 L. R. A. 248; Anderson v. 
Gill, 79 Md. 312; Holmes v. Roe, 62 Mich. 199; Bank of New Han- 
over V. Kenan, 76 N. C. 340. 

45 Morris v. Eufaula Nat. Bank, 106 Ala. 383. 18 So. 11. 

Payment of check by drawer does not waive negligence of bank, 
see post, § 76. 

(113) 



§ 67 BANK COLLECTIONS. [(Jh. 4 

were then protested, the first bank did not present the 
checks within a reasonable time, and the indorsers were 
discharged.*" 

It is no defense to an action for negligence in failing 
to seasonably present a check that it would not have 
been paid had it been duly presented.*'^ 

§ 67. Effect of custom. 

Conduct of the collecting bank at variance with the 
general rules governing presentment for payment may 
be justified by custom.''® Thus, where the last day of 
grace was Sunday, the collecting bank was held not 
chargeable with negligence in not demanding payment 
on that day, payment having been' duly demanded on the 
next Mondaj', in accordance with an established custom 
at such bank.*'' So, also, a custom among banks to treat 
certificates of deposit paj^able in "current funds" as 
payable witliout grace is a good defense to an action by 
an indorsee against the bank for negligence in so treat- 
ing the iiaper, and thereby discharging an indorser.^" 

Another important application of the rule that custom 
may modify the strict rules of law in these matters is a 
leading Massachusetts case, holding that evidence is 

40 First Nat. Bank of Wymore v. Miller, 37 Neb. 500, 55 N. W. 
1064. 

47 Bank of New Hanover v. Kenan, 76 N. C. 340. 

•is Custom of retaining paper after dishonor, on promise of debtor 
to pay, see post, § 74. 

*s> Patriotic Bank of Washington v. Farmers' Bank of Alexandria, 
2 Cranch, C. C. 560, Fed. Cas. No. 10,811. 

■'<« Haddock v. Citizens' Nat. Bank, 53 Iowa, 542, 5 N. W. 766, 
citing Mechanics' Bank at Baltimore v. Merchants' Bank at Boston, 
6 Mete. (Mass.) 13. 
(]14-) 



Ch. 4] CHARGING PARTIES. § 68 

admissible, on behalf of a bank sued for not duly de- 
manding payment of a note, that it was the custom of 
defendant and of all other banks in the same city to 
keep notes until the close of business hours, and, if not 
paid at the end of such time, to put them in the hands 
of a notary, and that this custom was followed by de- 
fendant in case of the note in suit.^^ 

§ 68. Protest. 

The collecting bank's position as a "holder" for pur- 
poses of collections^ requires it to duly protest dishon- 
ored paper, and renders it liable for any damages sus- 
tained by its failure to protest it.^^ 

The term "protest," when used hj the depositor of 
paper for collection in his instructions to the bank, and 
in its popular sense, means "simply a demand of pay- 
ment in proper form, and at a proper time ; and, in case 
of nonpayment, due and reasonable notice to the indors- 
ers by the bank, or any of its clerks or servants, or other 
suitable person."'^* Tu other words, it requires the bank 
to take steps essential to charge the drawer and in- 

01 Warren Bank v. Suffolk Bank, 10 Cush. (Mass.) 582. In this 
■case it was shown that defendant had been plaintiffs' collecting 
agent for more than ten years, and had invariably placed their 
notes in the hands of a notary for demand and protest, and that 
plaintiffs knew of the custom. 

52 See ante, § 59. 

=3 Chapman v. McCrea, 63 Ind. 360; American Express Co. v. 
Haire, 21 Ind. 4; Steele v. Russell, 5 Neb. 211; Thompson v. State 
Bank, 3 Hill (S. C.) 77, Riley's Law Cases, 81; Coghlan v. Dins- 
more, 22 N. Y. Super. Ct. 453; City Nat. Bank of Dayton v. Clinton 
County Nat. Bank of Wilmington, 49 Ohio St. 351, 30 N. B. 958. 

5-iAyrault v. Pacific Bank, 47 N. Y. 570, 575, affirming 29 N. Y. 
Super. Ct. 337. 

(115) 



§ 69 BANK COLLECTIONS. [Ch 4 

dorsers.^" But, generally speaking, a collecting b^nt, 
not specifically instructed in the matter, is bound to 
protest the paper only ^vhen protest is necessary to pre- 
serve the owner's recourse against the parties contin- 
gently or secondarily liable to him.^® 

Sometimes specific orders are given to the bank not 
to protest the paper. But, on an issue as to whether 
such orders had been given, where the collection clerk 
had testified that he had received such orders, and made 
a contemporaneous note to that effect in the collection 
book, and the book was in evidence, testimony that the 
clerk was cautious and careful, and had not previously 
made any mistakes, is immaterial.^^ 

§ 69. Excuses and defenses. 

It is a good defense on the part of a bank sued for not 
protesting drafts that, before the drafts in question 
were sent to it, it had notified plaintiff not to send any 
more drafts marked "protest," and that, pursuant to 
such notice, many drafts not so marked had been re- 
ceived from plaintiff, and had not been protested, and 
that many of them had been collected after maturity, 
and the proceeds remitted to plaintiff.^^ But a bank 
sued for failing to take proper steps to charge indorsers 
cannot defend pro tan to on the ground that the maker, 

55 Wood River Bank v. First Nat. Bank of Omaha, 36 Neb. 744. 

56 West Brancli Bank v. Fulmer, 3 Pa. St. 399. See, also, Port- 
house V. Parker, 1 Camp. 82; Taylor v. Young, 3 Watts (Pa.) 344; 
Gowan v. Jackson, 20 Johns. (N. Y.) 176. 

5T Jagger v. National German American Bank of St. Paul, 53 
Minn. 386, 55 N. W. 545. 

58 First Nat. Bank of Arkansas Pass v. St. Charles Sav. Bank 
(Tex. Civ. App.) 37 S. W. 768. 

(116) 



Ch. 4] CHARGING PARTIES. § 70 

who was indebted to the indorsers, paid them, before 
maturity of the note, a part of the amount thereof, on 
their promise to pay the note at maturity, and give him 
additional credit, since the paj'^ment was for the benefit 
of the maimer, and not of the holder.^^ And a banlt 
which lias undertaken to collect notes delivered to it 
for that purpose is not excused from liability for negli- 
gence in failing to protest them by the fact that its of- 
fice building was burned, and the affairs of the bank 
confused thereby.'''' 

If, however, a note is made a special deposit, and 
placed in the private envelope of the depositor, to which 
he had access at all times, the bank is not liable for a 
failure to protest, whereby the indorser was dischar- 
ged."^ 

§ 70. Notice of dishonor. 

One of the principal steps, or perhaps the principal 
step, in the process of protesting, as defined above, is 
the giving of notices of dishonor to the proper parties. 
Here, again, we refer the reader to the general works on 
bills and notes or negotiable instruments, for the gen- 
eral rules applying to all holders, whether banks or not. 
These general rules a collecting bank is, of course, pre- 
sumed to know. It should know, for instance, that it 

59 Coghlan v. Dinsmore, 22 N. Y. Super. Ct. 453. 

60 Merchants' State Bank v. State Bank of Phillips, 94 Wis. 444, 
69 N. W. 170. 

siBohl V. Carson, 63 Fed. 26, 32, 11 C. C. A. 16, 22 U. S. App. 
493; New Orleans Canal & Banking Co. v. BscofiSe, 2 La. Ann. 830, 
832. There was also evidence in the case last cited that the bank 
was directed not to protest, at the time the notes were deposited 
for safe-keeping. 

(117) 



§ 70 BANK COLLECTIONS. [Ch. 4 

is liable if it fails to notify its principal of the nonac- 
ceptance of the bill;®^ and that it must give notice of 
nonacceptance to the indorsee of a sight draft, though 
the drawer is insolvent."^ But a failure to give notice 
to the drawer that, on presentment for acceptance, the 
drawee was not found at home, is not such negligence 
as discharges the drawer.®* 

The bank should know, too, that its position as "hold- 
er" for collection requires it to give proper notices of 
dishonor, and renders it liable for default in this re- 
spect."^ And the notices should be in the proper legal 
form, and actually delivered or properly mailed to the 
proper parties ; for mere knowledge on their part of dis- 
honor is not equivalent to notice.®'^ 

The rule is different, however, in Pennsylvania, where 
it has been held that if the indorser actually receives 
notice of dishonor, accidentally or otherwise, in due 
time, the collecting bank is excused from liability for 
failure to give the notice.®'' 

62 Exchange Nat. Bank of Pittsburgh v. Third Nat. Bank of New 
York, 4 Fed. 20. 

63 Citizens' Nat. Bank of Lawrenceburg v. Third Nat. Bank of 
Greensburg, 19 Ind. App. 69, 49 N. E. 171.' 

64 Bank of Washington v. Triplett, 1 Pet. (U. S.) 25, 35. 

65 Pabens v. Mercantile Bank, 23 Pick. (Mass.) 330, 34 Am. Dec. 
59; Mead v. Bngs, 5 Cow. (N. Y.) 303; Manchester Bank v. Pel- 
lows, 28 N. H. 302; Sheldon v. Benham, 4 Hill (N. Y.) 129; Burn- 
ham V. Webster, 19 Me. 232; Blakeslee v. Hewett. 76 Wis. 341; 
Chapman v. McCrea, 63 Ind. 360; City Nat. Bank of Dayton v. 
Clinton County Nat. Bank of Wilmington, 49 Ohio St. 351, 30 N. E. 
958; Thompson v. State Bank, 3 Hill (S. C.) 77, Riley's Law Cases, 
81. 

66 Jagger v. National German American Bank of St. Paul, 53 Minn. 
386, 55 N. W. 545. 

67 Hallowell v. Curry, 41 Pa. St. 322, 328. 
(118) 



Ch. 4] CHARGING PARTIES. § 70 

It has also been held in that state that, where the in- 
dorsers were also the makers of a note, not payable at 
any particular place, the collecting bank is not charge- 
able with negligence in not giving them notice, the fact 
of dishonor having been known to them.''* But it is 
believed that the Pennsylvania rule is too lenient with 
the bank, and too loose altogether. It is much the bet- 
ter rule that formal notice be given to all parties en- 
titled to notice. 

A bank on which a check is drawn, after having re- 
ceived the same for collection, is liable to the sender for 
any damages caused by its failure to give to the drawer 
notice of nonpayment.®^ And a bank agreeing to col- 
lect paper payable at a distance for a certain per cent, 
of the amount of the paper must give timely notice of 
nonpayment to the sender.'^" 

A bank ordered to protest paper if not paid should 
give notice of nonpayment to the bank which sent the 
paper not later than the next day after dishonor; and 
if it holds the paper for two days to enable the drawer 
to provide funds, it is liable as on an implied acceptance 
of the paper. '^^ 

While a bank may sometimes justify its course under 
a general custom of banks, a bank, after having aban- 

68 West Branch Bank v. Fulmer, 3 Pa. St. 399. See, also. Port- 
house V. Parker, 1 Camp. 82; Taylor v. Young, 3 Watts (Pa.) 344; 
Gowan v. Jackson, 20 Johns. (N. Y.) 176. 

69 Exchange Bank of Wheeling v. Sutton Bank, 78 Md. 577, 28 
Atl. 563, 23 L. R. A. 173. 

''» Wingate v. Mechanics' Bank, 10 Pa. St. 104. 

71 Wood River Bank v. First Nat. Bank of Omaha, 36 Neb. 744, 
55 N. W. 239; First Nat. Bank of Northumberland v. McMichael, 
106 Pa. St. 460. 

(119) 



§ 71 BANK COLLECTIONS. [Ch. 4 

doned a custom of giving notice of dishonor by mail, 
where the indorser and holder lived in the same town, 
cannot rely on such custom, though it is still followed 
by other banks.^^ 

§ 71. What indorsers entitled to notice from bank. 

The collecting bank need not notify all prior parties, 
but need only notify its own principal or immediate 
indorser.'''^ So, it has been held that, in the absence of 
special agreement, a correspondent which, has received 
for collection from the initial bank a note indorsed by 
the initial bank, and by a prior indorser, the initial 
bank appearing by the indorsements to be the owner of 
the paper, is bound, after demand of payment and dis- 

" Isbell V. Lewis, 98 Ala. 550, 13 So. 335. 

73McCullock V. Commercial Bank, 16 La. 566; State Bank of Troy 
V. Bank of Capitol, 41 Barb. (N. Y.) 343, 27 How. Pr. 57, 17 Abb. 
Pr. 364; Cardwell v. Allan, 33 Grat. (Va.) 167; Phipps v. Millbury 
Bank, 8 Mete. (Mass.) 79; Colt v. Noble, 5 Mass. 167; Eagle Bank 
V. Chapin, 3 Pick. (Mass.) 180; Mead v. Bngs, 5 Cow. (N. Y.) 303; 
Haynes v. Birka, 3 Bos. & P. 599; Firth v. Thrush, 8 Barn. & C. 
387. • 

Contra, see Smedes v. Bank of Utica, 20 Johns. (N. Y.) 372, hold- 
ing that the bank must notify all indorsers. 

An indorsee who delivered the note to an express company for 
collection without any indorsement to the company is neverthe- 
less entitled to due notice of nonpayment. Rosson v. Carroll, 90 
Tenn. 90, 16 S. W. 66, 12 L. R. A. 727. ' 

That a collecting bank as indorser for collection is entitled to 
notice, see McNeil v. Wyatt, 3 Humph. (Tenn.) 125; Seaton v. 
Scovill, 18 Kan. 435. 

For effect of intermediate agency for collection on time required 
for notice to successive obligors, see Slack v. Longshaw, 8 Ky. 
Law Rep. 166; Warren v. Oilman, 17 Me. 360; McNeil v. Wyatt, 3 
Humph. (Tenn.) 125. 

(120) 



Oh. 4] CHARGING PARTIES. § 72 

honor, to give due notice to the initial bank, in order to 
enable it to give due notice to such parties as it intended 
to look to for payment, and is not bound to notify the 
prior indorser.'^* And, in the absence of custom or 
usage to that effect, the mere fact that the bank under- 
takes to send notices to prior parties, while some evi- 
dence of a special agreement to notify them, is not suf- 
ficient evidence of such an agreement.^^ Nor can a 
second indorser, to whom the collecting bank has given 
due notice of protest, on taking up the note, sue the 
bank for not notifying the first indorser, as the bank," if 
responsible at all, is responsible only to its principal.^" 

^ 72. Owner may sue bank without first suing indorser. 

Indorsers, legally discharged by a presentment by the 
•collecting bank without grace, of a note entitled to grace, 
will be presumed to intend to avail themselves of the 
discharge if sued; hence plaintiffs are not bound to in- 
stitute a fruitless suit against them before suing the 
bank for negligence.^' On the same theory, the owner 

'* Phipps V. Millbury Bank, 8 Mete. (Mass.) 79. 

Where the executors of a deceased indorsee (the payee) had duly 
■qualified before maturity of the note, and notices of protest had 
been mailed by the initial bank to the correspondent bank to be 
sent to the indorsers, but neither such executors nor a surviving 
indorser were served with the notices, the latter bank is liable 
for any loss sustained by the holder of the note. Bird v. Louisiana 
State Bank, 93 U. S. 96, 23 L. Ed. 818. 

T-. State Bank of Troy v. Bank of Capitol, 41 Barb. (N. Y.) 343, 
27 How. Pr. 57, 17 Abb. Pr. 364. 

78 McCullock V. Commercial Bank, 16 La. 566. 

7T Mechanics' Bank at Baltimore v. Merchants' Bank at Boston, 
« Mete. (Mass.) 13, 26. 

(121) 



§ 73 BANK COLLECTIONS. [Ch 4- 

may sue the bank for negligence in failing to protest or 
give notice before suing the indorser.'^^ 

§ 73. Enforcement of paper taken in payment. 

We have seen that, in the absence of special agree- 
ment or binding custom, the collecting bank, in accept- 
ing paper instead of money in payment, does so at its 
own risk. It behooves the bank, then, for its own jjro- 
tection, as well as for the benefit of the owner, to use 
diligence in obtaining payment of paper so received.''* 
So, a bank receiving a check of the drawee of a draft,, 
and surrendering the draft, should present the check 
on the day of its receipt.*" 

It is also liable to the depositor of paper for collec- 
tion for any loss sustained by its negligence in failing 
to protest, on nonpayment, a draft received by it in 
payment of the collection.*^ 

,A peculiar case involving the duty of the bank to en- 
force paper received in payment was recently decided 
in Colorado. A deed and a check for the price of the 
land to be conveyed were deposited with defendant 
bank, with instructions to deliver the deed on col- 
lection of the check, which Avas on a bank in an- 
other state. The latter bank mailed to defendant bank 
its draft for the amount, less exchange, payable to- 

Ts D'owner v. Madison County Bank, 6 Hill (N. Y.) 648; Canonge- 
V. Louisiana State Bank (La.) 3 Mart. (N. S.) 344. 
70 See ante, §§ 46, 47. 

80 Nunnemaker v. Lanier, 48 Barb. (N. Y.) 234. See, also. First 
Nat. Bank of Meadville v. Pourtli Nat. Bank of New York City, 77" 
N. Y. 320, 33 Am. Rep. 618. 

81 Capitol State Bank v. Lane, 52 Miss. 677. 

(122) 



Ch. 4] CHARGING PARTIES. | 74 

defendant bank, but, pursuant to request from the 
drawer of the check, made while the draft was 
in the mails, defendant bank returned the draft 
to him. It was held that defendant bank had no 
authority to return the draft, and that, by its wrong- 
ful act in so doing, it estopped itself to deny receipt of 
the proceeds of the check, and that, since the mailing 
constituted a delivery, defendant bank held the pro- 
ceeds in trust for the owner of the check.^^ In this 
case, an attempt was made to apply the doctrine of 
stoppage in transitu, but the court held that the doc- 
trine did not apply because the mailing of the draft, 
under the circumstances, constituted a delivery.^^ 

§ 74, Return of dishonored paper. 

The collecting bank is bound to return dishonored pa- 
per within a reasonable time.^* If it does not, after 
having given absolute credit therefor, it will be con- 
sidered as a debtor for the amount of the paper.^^ 

The retention of a sight draft for forty-seven days with- 
out informing the sender of nonpayment or of the in- 

52 Gregg V. Bi-Metallic Bank, 14 Colo. App. 251, 59 Pac. 852. 

53 Gregg V. Bi-Metallic Bank, 14 Colo. App. 251, 59 Pac. 852. See, 
also, Whiting v. City Bank of Rochester, 77 N. Y. 363; MuUer v. 
Poudir, 55 N. Y. 325; Canterbury v. Bank of Sparta, 91 Wis. 53, 
64 N. W. 311. 

siKirkham v. Bank of America, 165 N. Y. 132, 58 N. B. 753, 
affirming 26 App. Div. 110, 49 N. Y. Supp. 767; Kershaw v. Ladd, 
34 Or. 375, 56 Pac. 402; Mound City Paint & Color Co. v. Com- 
mercial Nat. Bank of Ogden, 4 Utah, 353, 9 Pac. 709; Whitney v. 
Merchants' Union Exp. Co., 104 Mass. 152, 6 Am. Rep. 207. 

85 Kirkham v. Bank of America, 165 N. Y. 132, 58 N. E. 753. See, 
also, other cases cited In preceding note. 

(123) 



§ 74 BANK COLLECTIONS. [Ch. 4 

ability to collect by reason of the insolvency of the 
drawee, which was known to the bank, renders the bank 
liable for the loss sustained.®® 

An interesting decision, recently affirmed in the New 
York court of appeals, involved the following state of 
facts : Defendant bank forwarded a draft, left by a 
regular customer for collection, to its agent at the place 
of payment, and the latter received the drawee's sight 
draft on its correspondent in another city in payment, 
and defendant credited the depositor with the amount 
of the draft. The sight draft was not paid, and the 
depositor demanded the return of the original draft, 
or the remittance of the amount thereof. The credit 
was Anally canceled by the bank about a month after 
it knew of the dishonor of the second draft, during 
which time defendant repeatedly requested the depos- 
itor to try to get the drawee to provide funds to meet 
it. The original draft was not returned. It was held 
that the bank was liable for the amount of such draft. 
In this case, the court said: "To justify it in canceling 
that credit, or refusing to pay on demand, it was at 
least bound to deliver to him the draft properly pro- 
tested, so as to charge the drawer, and, in the absence 
of such return of the draft, it was liable for the 
money." *^ 

The same rule has been applied to express companies, 
and it has been held that, where a draft is sent to an 
express company with instructions to return it at once 

se Mound City Paint & Color Co. v. Commercial Nat. Bank of 
Ogden, 4 Utah, 353, 9 Pac. 709. 

ST Kirkham v. Bank of America, 26 App. Div. 110, 49 N. Y. Supp. 
767, affirmed in court of appeals, 165 N. Y. 132, 58 N. E. 753. 

(124) 



Ch. 4] CHARGING PARTIES. § 75 

if not paid, the company is liable for the loss occasioned 
to the drawer by retaining the draft in its possession 
for four days without presentment, in order that the 
drawee might make inquiries as to a supposed mistake 
in the amount of the draft, the drawee having become 
insolvent in the meantime.**^ But a failure of the col- 
lecting bank to return to the drawer a dishonored check 
until after the insolvency of the drawee is not action- 
able negligence if the drawer was, nevertheless, enabled 
to and did sue the drawee without it.^® 

The question of negligence of a bank in failing to 
return an accepted bill after nonpayment by the ac- 
ceptor until after the acceptor became insolvent is for 
the jury.^" 

§ 75. Effect of custom. 

The duties and responsibilities of the collecting bank 
with respect to an immediate return of dishonored pa- 
per may be modified by proof of custom, and it has been 
held that one sending paper to a bank for collection 
without special instructions is bound hy a custom of 
the bank to hold paper sent for collection for some time 
after presentment in case it receives a promise of pay- 
ment.^^ 

88 Whitney v. Merchants' Union Exp. Co., 104 Mass. 152, 6 Am. 
Rep. 207. 
P9 Kershaw v. Ladd, 34 Or. 375, 56 Pac. 402. 

90 Pox V. Davenport "Nat. Bank, 73 Iowa, 649, 35 N. W. 688. In 
this case it was held proper to refuse to submit to the .iury the 
question of negligence in failing to present or collect the bill. 

91 Sahllen v. Bank of Lonoke, 90 Tenn. 221; 16 S. W. 373. 

Effect of custom as to time and manner of presentment for pay- 
ment, see ante, § 67. 

(125) 



§ 76 BANK COLLECTIONS. [Ch. 4 

§ 76. Ratification and waiver of negligence of bank. 

The same general rules applied above to the waiver 
of the negligence of the collecting bank in other par- 
ticulars"^ apply to its negligence in taking the neces- 
sary steps to charge the parties. Accepting and acting 
on the negligent conduct of the bank with full knowl- 
edge of the facts amounts to a waiver or ratification 
here as well as there."^ So, where the collecting bank 
notified, by mail, the drawee, who resided in the coun- 
try at some distance from the bank, in accordance with 
its usual custom, and later notified the sender that the 
drawee had called at the bank, and, on presentment, 
had. accepted the draft and stated that he could not 
pay it before the next week, and the sender allowed 
the draft to remain in the bank without further in- 
structions until the next week, when the drawee became 
insolvent, the bank is not chargeable with negligence."* 
But ignorance of negligence or of a material part of 
it materially alters the rule."^ Thus, a promise to pay 
the note, made by an indorser after his discharge by 
the negligence and laches of defendant bank in failing 
to protest and give notice, but without knowledge of 
such laches, and the consequent discharge, is not bind- 
ing;"^ and an indorser who actually paid the note to 

92 See ante, § 57. 

93 See Hobbs v. Straine, 149 Mass. 212, 21 N. B. 365. 

94 Grouse v. First Nat. Bank of Penn Yan, 137 N. Y. 383, 33 N. E. 
301, affirming 61 Hun, 618, 15 N. Y. Supp. 498. 

«'• See, also, ante, § 57. 

ixi City Nat. Bank of Dayton v. Clinton County Nat. Bank of Wil- 
mington, 49 Ohio St. 351, 360, 30 N. E. 958; Tebbetts v. Dowd, 23 
Wend. (N. Y.) 379. Aliter of a promise made with knowledge of 
the facts. See Hobbs v. Straine, 149 Mass. 212, 21 N. E. 365. 
(12(0 



<Jh. 4J CHARGING PARTIES. § 76 

the collecting bank in ignorance of the fact that no 
demand of payment had been made on the maker, and 
no notice served on himself (the attempt to notify the 
indorser having been abortive.), can recover back the 
money from the bank as money jjaid under a misappre- 
hension of fact, as well as a mistake of law.®^ Nor 
does an indorser waive his right to a discharge for want 
of protest and notice, by giving an extension of time 
to the maker in ignorance of the' fact of his legal dis- 
charge."** On the same theory, negligence of the col- 
lecting bank in failing to take steps to charge indorsers 
is not waived by them by accepting from the maker, 
who A^'as indebted to them, before maturity,^ part of 
the amount of the note, and promising to pay it at ma- 
turity, and give the maker further credit, where such 
payment and promise were not known to the holder 
until after he began suit against the bank for the 
negligence.'^'' 

Pleasures taken by the owner to secure or ijrotect 
himself from the negligence of the bank do not amount 
to a waiver or ratification of such negligence. On this 
theory, it has been held that an indorser discharged by 
Avant of demand on the drawer, or notice of protest to 
himself, will not be j)resumed to have waived such de- 
faults by attending a meeting of creditors of the drawer 
to obtain security against his indorsement;^"" also, that 
negligence of a bank in failing to present for payment 

0- Garland v. Salem Bank, 9 Mass. 408, 414. 

88 City Nat. Bank of Dayton v. Clinton County Nat. Bank of Wil- 
mington, 49 Ohio St. 351. 30 N. B. 958. 

99 Coghlan v. Dinsmore, 22 N. Y. Super. Ct. 453. 

100 Miranda v. City Bank of New Orleans, 6 La. 740, 26 Am. Dec. 
493. 

(12Y) 



§ 76 BANK COLLECTIONS. [Ch. 4 

in time a bill stating no time of payment, and therefore 
payable on demand, where the bank had, instead, pre- 
sented it for acceptance and sent for instructions as to 
protest, is not ratified by subsequent telegraphic in- 
structions to protest ;^°^ and that withdrawing the pa- 
per from the collecting bank after its failure to take 
proper steps for collection is not a waiver of the right 
to recover for the negligence of the bank.^*^ 

So, also, it has been held that negligence of the col- 
lecting bank in not seasonably returning a dishonored 
check given it in payment of an indorsed draft is not 
waived by the owner of the draft, who had received ab- 
solute credit for the amount of the draft on the receipt 
of the check, by assisting the bank to procure payment 
of the check from the indorser of the draft.^"* 

This theory also forms the basis of a Mississippi case 
holding that the depositor of the original collection, by 
calling for and receiving from the bank a draft taken 
by it in part payment, ratified the act of the bank in 
so, taking it in part payment, but did not thereby waive 
his right of action for the negligence of the bank in 
failing to charge the drawers of such draft by failing 
to protest it on nonpayment.^"* 

The facts that the owner of a note which defendant 
bank had failed to protest received from defendant's 
cashier a renewal note, with a statement that the first 

101 First Nat. Bank of Davenport v. Price, 52 Iowa, 570, 3 N. W. 
6is». 

102 Bank of Mobile v. Huggins, 3 Ala. 206, 221. 

103 Kirkham v. Bank of America, 165 N. Y. 132, 58 N. B. 753, af- 
firming 26 App. Div. 110, 49 N. Y. Supp. 767. 

104 Capitol State Bank v. Lane, 52 Miss. 677. 

Bank has no authority to receive part payment, see ante, § 44. 
(128) 



Ch. 4] CHARGING PARTIES. § 76 

note had been lost, and retained the renewal note for 
some time, though evidence of a ratification of the 
acts of the bank, are not conclusive.^ °° 

Payment by the drawer of a local check of the 
amount thereof to a collecting bank will not prevent 
a recovery by him against the bank for negligence in 
failing to present it on' the day of its receipt, the drawee 
bank having failed at the close of such day.^*"^ 

105 Roanoke Nat. Bank v. Hambrick, 82 Va. 135. 137. 

106 Morris v. Bufaula Nat. Bank, 106 Ala. 383, 18 So. 11. 

(129) 



BANK COLLECTIONS. [Ch. 5 



CHAPTER V. 

EMPLOYMENT OP AGENTS AND CORRESPONDENTS, AND 
LIABILITY FOR THEIR DEFAULTS. 

(A) In General. 

§ 77. Bank must use reasonable care in selection of agents and 
correspondents. 

78. Drawee or obligor not a suitable agent or correspondent. 

79. Effect of custom. 

80. Contracts and dealings between banks in general. 

81. Employment of notaries, and liability for their acts and 

defaults. 

82. Notary an officer or employe of bank. 

83. Notary a public officer. 

84. Employment of agents otber tlian notaries and banks, and 

liability for their defaults. 

(B) Liability of Initial Bank for Default of Correspondent. 



§ 85. 


In general. 


86. 


England. 


87. 


Federal courts of the United States. 


88. 


New York. 


89. 


New Jersey. 


90. 


Ohio. 


91. 


Georgia. 


92. 


Michigan. 


93. 


Minnesota. 


94. 


Montana. 


95. 


North Dakota. 


96. 


South Dakota. 


97. 


Colorado. 


98. 


Texas. 


99. 


Massachusetts. 


100. 


Connecticut. 


(130) 





Q]j^ 5] EMPLOYMENT OP AGENTS, ETC. 



101. 


Pennsylvania. 


102. 


Maryland. 


103. 


North Carolina. 


104. 


Indiana. 


105. 


Illinois. 


106. 


Wisconsin. 


107. 


Iowa. 


108. 


Kansas. 


109. 


Nebraska. 


110. 


Missouri. 


111. 


Kentucky. 


112. 


Tennessee. 


113. 


Alabama. 


114. 


Mississippi. 


115. 


Louisiana. 


116. 


Conclusions from the decisions. 


117. 


Effect of special agreements. 


118. 


Effect of custom. 


119. 


Effect of insolvency of correspondent. 


120. 


Liability of correspondent bank to initial bank. 



(A) In General. 

When the collecting bank employs notaries, correspondent 
"banks, or other agents to assist in making the collection, it 
must in all cases use reasonable care in the selection of such 
agents. 

The bank on which the paper is drawn is not a suitable 
agent or correspondent for the collection of the paper, though 
it is the only bank at the place of payment. This rule may 
be modiiied or nullified by express instructions, and, in some 
jurisdictions, by general custom; but in other jurisdictions, a 
custom of sending paper for collection directly to the drawee 
bank is regarded as unreasonable and against public policy. 

There is considerable conflict of authority as to the liability 
of a bank for the defaults of a notary selected by it to assist 
in the collection. The better rule is that the bank is liable; 
but the numerical weight of authority is to the contrary. The 
same conflict appears over the question of the liability of the 

(131) 



§ 77 BANK COLLECTIONS. [Qh. 5 

bank in ease the notary is one of its officers or re^lar em- 
ployes. The fact that the notary is a public officer required 
by law to properly protest commercial paper is deemed by 
some courts sufficient reason for relieving the bank from lia- 
bility. 

The collecting bank is liable for the acts of agents, other 
than notaries and banks, which it has selected to make present- 
ment and receive payment. 

§ 77. Bank must use reasonable care in selection of agents 
and correspondents. 

In taking the steps necessary to perform its duties 
as a bailee for collection, the collecting bank may em- 
ploy notaries or other agents to make presentment, de- 
mand, and protest, and to give notice of dishonor, if 
' these steps, or any or some of them, are necessary to 
complete the collection.^ If the paper is payable at a 
distance, the bank employs its correspondent bank at 
the place of payment, if it has one there, or, if not, 
some other bank or individual at that place or near it, 
to take these steps for it. 

Waiving, for the present, all disciission of the ques- 
tion whether the collecting bank is authorized, by vir- 
tue of its relation with its customer, to employ an agent 
or correspondent for such customer, who shall himself 
be liable directly to such customer, or may merely, as 
bailee and independent contractor, select its own agents 
and correspondents, for whose defaults it is liable to 
the customer,^ we may state it as a general rule that, 

1 Warren v. Gilman, 17 Me. 360. See, also, cases cited in notes 
27 to 44, infra. 

2 See post, §§ 85-116. 
(132) 



Ch. 5] EMPLOYMENT OF AGENTS, ETC. § 78 

if agents or correspondents are employed to assist in 
the collection, the bank must use reasonable care in 
their selection.^ 

The collecting bank is bound to employ a suitable 
and competent person to give notice to indprsers, and 
is liable in case it intrusts that duty to one, not a 
notary public, whose acts in attempting to perfect 
service of the notice plainly showed that he was either 
ignorant of the legal requirements in such cases, or was 
careless.* But the mere knowledge of a suspicion of 
the insolvency of a correspondent which has a good 
reputation for solvency in the city where it does busi- 
ness, and is believed by the initial bank to be solvent, 
does not render the initial bank guilty of negligence in 
sending paper to such correspondent.^ 

§ 78. Drawee or obligor not a suitable agent or correspondent. 

Common sense and business experience dictate the 
rule that a collecting bank must not transmit the paper 
directly to the bank or other party by whom payment 
is to be made ; for "no party on Avhom rests the obliga- 
tion to pay upon presentation can be deemed a suitable 
agent, in contemplation of law, to enforce, on behalf 
of another, a claim against itself.'"^ 

3 First Nat. Bank of Girard v. Craig, 3 Kan. App. 166, 42 Pac. 
830; Bank of Lindsborg v. Ober, 31 Kan. 599, 3 Pac. 324; Smedes 
v. Bank of Utica, 20 Johns. (N. Y.) 372, 385; Aetna Ins. Co. v. 
Alton City Bank, 25 111. 243; Masicb v. Citizens' Bank, 34 La. Ann. 
1207. 

See, also, post, § 78. 

■> Smedes v. Bank of Utica, 20 Johns. fN. Y.) 372, 385. 

5 Fay V. Strawn, 32 111. 295. 

« Minneapolis Sash & Door Co. v. Metropolitan Bank, 76 Minn. 136, 

(133) 



§ 78 BANK COLLECTIONS. [Ch. 5 

On the question of the suitableness of the bank pri- 
marily liable on paper to be made agent for its col- 
lection, or, in other words, the propriety of sending 
paper directly to such bank for collection, the Colorado 
supreme court says : "Even if we can conceive of such 
an anomaly as one bank acting as the agent of another 
to make a collection against itself, it must be apparent 
that the selection of such an agent is not sanctioned by 
businesslike prudence and discretion. How can the 
debtor be the proper agent of the creditor in the very 
matter of collecting the debt? His interests are all 
adverse to those of his principal. If the debtor is em- 
barrassed, there is the temptation to delay ; if wanting 

78 N. W. 980, 44 L. R. A. 504; German Nat. Bank of Denver v. Burns, 
12 Colo. 539, 21 Pac. 714; Drovers' Nat. Bank v. Anglo-American 
Packing & Piovision Co., 117 111. 100, affirming 18 111. App. 191; 
First Nat. Bank of Bvansville v. Fourth Nat. Bank of Louisville, 
56 Fed. 967, 6 C. C. A. 183, 16 U. S. App. 1; National Bank of Com- 
merce of Seattle v. Johnson, 6 N. D. 180, 69 N. W. 49; First Nat. 
Bank of Chicago v. Citizens' Sav. Bank of Detroit (Mich.) 82 N. 
W. 66; Givan v. Bank of Alexandria (Tenn. Ch.) 52 S. W. 923; 
Lowenstein v. Bresler, 109 Ala. 326, 19 So. 860; Merchants' Nat. 
Bank of Philadelphia v. Goodman, 109 Pa. St. 422, 2 Atl. 687; Wag- 
ner V. Crook, 167 Pa. St. 259, 31 Atl. 576; Anderson v. Rodgers, 53 
Kan. 542, 36 Pac. 1067, 27 L. R. A. 248, and notes; First Nat. Bank 
of Corsicana v. City Nat. Bank of Dallas, 12 Tex. Civ. App. 318, 
34 S. W. 459; Western Wheeled Scraper Co. v. Sadilek, 50 Neb. 
105, 69 N. W. 765; 1 Daniel, Neg. Inst. 328a. 

The negligence of a bank in selecting the drawee of a check 
as its agent for collection thereof is matter of defense in an ac- 
tion by the bank against the drawers of the check to whom it had 
paid value therefor, and should be set up in the answer. Nebraska 
Nat. Bank v. Logan, 29 Neb. 278, 45 N. W. 459. 

Bntrusting«ia check to the drawee for collection does not operate 
as an extinguishment or payment of the check. Lowenstein v. 
Bresler, 109 Ala. 326, 19 So. 860. 

(134) 



Ch. 5] EMPLOYMENT OF AGENTS, ETC. § 78 

in integrity, there is the opportunity to destroy and 
deny the evidence of tlie indebtedness." '^ 

In arguing this same point, the supreme court of 
Illinois says : "The same person cannot be both debtor 
and creditor at the same time, and in respect of the 
same debt. How, then, can he who is debtor be at 
the same time and in respect of the same debt the dis- 
interested agent of the creditor? Can it be said to be 
reasonable care in selecting an agent to select one 
known to be interested against the principal? To 
place the principal entirely in the hands of his adver- 
sary? The interest of the creditor when his debtor is 
failing is that steps be taken promptly and prosecuted 
with vigor to collect his debt. But at such a time the 
inclination of the creditor .quite often, and it may be 
sometimes his interest, too, is to proscrastinate. The 
debtor may often be interested in bringing about a com- 
promise with his creditors, whereby his debt may be 
discharged for less than its face, but the creditor whose 
debt can all be collected by legal proceedings can never 
be interested in producing that result. Surely it could 
not be held reasonable care and diligence in an agent, 
holding for collection the promissory note given by one 
individual to another individual, to send the promissory 
note to the maker, trusting to him to make payment, 
delay it, or destroy the evidences of indebtedness and 
repudiate the transaction, as his conscience might per- 
mit. If this would not be held to be reasonable care 

7 German Nat. Bank of Denver v. Burns, 12 Colo. 539, 21 Pac. 
714, distinguishing People v. Merchants' & Mechaiics' Bank of 
Troy, 78 N. Y. 269, and Indig v. National City Bank of Brooklyn, 
80 N. Y. 100. 

(135) 



§ 78 BANK COLLECTIONS. [Ch. 5 

and diligence, why should the same conduct be held to 
be reasonable care and diligence when applied to a 
bank?"« 

The bank is liable in case loss occurs because of send- 
ing the paper directly to the drawee or the party to 
make payment, though it notified its customer, on re- 
ceiving the paper for collection, that it would act mere- 
ly as agent for him, and would assume no liability from 
the negligence or omissions of subagents, to whom it 
might forward the paper for collection, as it was bound 
to exercise reasonable care and diligence in adopting 
a method of presenting the paper to its drawee for pay- 
ment.* 

It is unquestionablj'^ negligence for a bank to send a 
customer's check, intrusted to it for collection, directly 
to the drawee bank, if there is, in the same town, an- 
other bank in good standing and credit.^" The rule 
holds good, also, though the drawee bank was the only 
bank in good standing," or actually the only bank,^^ at 
the place of payment. 

The general rule is modified and sometimes wholly 
nullified by the instructions sent with the paper. Thus, 

8 Drovers' Nat. Bank v. Anglo-American Packing & Provision 
Co., 117 111. 100, 107. 

s> Minneapolis Sash & Door Co. v. Metropolitan Bank, 76 Minn. 
136, 78 N. W. 980, 44 L. R. A. 504. 

loFarwell v. Curtis, 7 Biss. 160, Fed. Cas. No. 4,690; Western 
Wheeled Scraper Co. v. Sadilek, 50 Neb. 105, 69 N. W. 765. See, 
also, cases cited in note 6, supra. 

11 Minneapolis Sash & Door Co. v. Metropolitan Bank, 76 Minn. 
136, 78 N. W. 980, 44 L. R. A. 504, Start, C. J., dissenting. 

12 American Exchange Nat. Bank of Lincoln v. Metropolitan Nat. 
Bank of Kansas City, 71 Mo. App. 451. 

(136) 



Ch. 5] EMPLOYMENT OF AGENTS, ETC. g 78 

where a certificate of deposit issued by a private banlvcr 
at B. was sent to a bank in D. for collection, with a 
statement by the sender that, "We note you have a 
correspondent at B.," and a direction to obtain the 
lowest rate of exchange possible, the collecting bank 
was not negligent because it sent the certificate directly 
to the banker at B., where it appeared that he con- 
ducted the only bank at B., and was the only corre- 
spondent there of the collecting bank, which fact was 
known to the sender, and the lowest rate of exchange 
could be obtained only by sending the paper to him.^^ 

The rule making it prima facie negligence to send the 
paper direct to the party primarily liable does not ap- 
ply where a draft was sent to the drawee bank merely 
to secure identification of the signature of the drawer, 
he having been unable to obtain identification of his 
signature in any other manner.^* So, where there was 
evidence that a stranger presenting a draft for collec- 
tion was AvhoUy unable to identify himself or his sig- 
nature, and that the collecting bank, with his consent, 
sent the draft to the drawee bank for identification of 
the signatiire, it was error to charge that under the 
evidence there was no need of forwarding the draft, to 
any place for identification of the signature.^^ 

On the question whether the liability of the bank is 
affected by the fact that the result would have been 
the same if it had sent the pajjer through proper chan- 
nels, there is a difference of opinion ; the courts of Mis- 

13 First Nat. Bank of Chicago v. Citizens' Sav. Bank of Detroit 
>(Mich.) 82 N. W. 66. 

iJ Davis V. First Nat. Bank of Fresno, 118 Cal. 600, 50 Pac. 666. 

15 Davis V. First Nat. Bank of Fresno, 118 Cal. 600, 50 Pac. 666. 

(137) 



§ 79 BANK COLLECTIONS. [Ch. 5 

sourP" and Minnesota^' holding that the fact that the 
paper would probably have met the same fate if sent 
to a third person for collection is immaterial ; and those 
of Texas, holding that negligence of the collecting bank 
in sending a draft directly to the drawee is offset by a 
showing, with reasonable certainty, that had the draft 
been sent properly, through a third person, its fate 
would have been the same.^^ But before the failure 
of the drawee, the fact that, if the collecting bank had 
delayed sending a draft for the extreme limit of time 
allowable, without being chargeable with negligence, 
the paper would not have reached its destination be- 
fore the failure of the drawee, will not excuse it from 
liability for negligence in sending it directly to the 
drawee, where it also appears that if it had been sent 
properly to a third person for collection at the time 
it was sent to the drawee, it would have been col- 
lected." 

§ 79. Effect of custom. 

The weight of judicial authority in America is to 
the effect that no custom among banks to send checks 
and drafts, payable at other banks at distant points, to 
the drawee directly, by mail, will excuse or justify the 
bank in so sending the paper, since such a custom is un- 

16 American Exchange Nat. Bank of Lincoln v. Metropolitan Nat. 
Bank of Kansas City, 71 Mo. App. 451. 

17 Minneapolis Sash & Door Co. v. Metropolitan Bank, 76 Minn. 
136, 78 N. W. 980, 44 L. R. A. 504. ' 

18 First Nat. Bank of Corsicana v. City Nat. Bank of Dallas, 12 
Tex. Civ. App. 318, 34 S. W. 458. 

10 First Nat. Bank of Corsicana v. City Nat. Bank of Dallas, 12; 
Tex. Civ. App. 318, 34 S. W. 458. 

n38) 



Ch. S] EMPLOYMENT OF AGENTS, ETC. § 79 

reasonable and opposed to the policy of the law.^" But 
there are American cases holding that a general and 
universal custom among banks to send paper payable 
in a distant city, where they have no correspondent, 
directly to the drawee bank in that city, will relieve a 
bank from liability for sending an ordinary unindorsed 
check, delivered to it for collection and deposit, di- 
rectly to the drawee for payment, such a custom being 
reasonable and lawful.^^ 

In England, the courts uphold broadly a custom of 
this kind, and have held that a London bank having 
no agent in Jersey is not negligent in sending a check, 
payable there, directly to the drawee bank, it being the 
custom of London bankers to so present checks on 
foreign drawees in case they have no agent at the place 
of payment.^^ A custom of sending the paper to the 
drawee, not for collection, but for a special lawful 
purpose, has been properly sustained by the supreme 
court of California, which holds that a bank sued for 
negligence in sending a draft direct to the drawee bank 

20 Drovers' Nat. Bank v. Anglo-American Packing & Provision 
Co., 117 111. 100, affirming 18 111. App. 191; Merchants' Nat. Ba-ik 
of Philadelphia v. Goodman, 109 Pa. St. 422, 2 Atl. 687; Minneapolis 
Sash & Door Co. v. Metropolitan Bank, 76 Minn. 136, 78 N. W. 
980, 44 L. R. A. 504; American Exchange Nat. Bank of Lincoln v. 
Metropolitan Nat. Bank of Kansas City, 71 Mo. App. 451. 

21 Kershaw v. Ladd, 34 Or. 375, 56 Pac. 402; Indig v. National 
City Bank of Brooklyn, 80 N. Y. 100, 104. The decision in the case 
last cited was based partly on the fact that no damage was shown. 

See, also, dissenting opinion of Start, C. J., in Minneapolis Sash 
& Door Co. V. Metropolitan Bank, 76 Minn. 136, 78 N. W. 980, 44 
L. R. A. 504. 

22Heywood v. Pickering, L. R. 9 Q. B. 428; Bailey v. Bodenham, 
16 C. B. (N. S.) 288. 

(139) 



§ 80 BANK COLLECTIONS. [Qh. 5 

for identification of the signature of the drawer, the 
cheek having been lost while in possession of the drawee 
bank, should be allowed to show the custom and usage 
of banks in regard to the identification of strangers 
presenting paper for collection, and that it followed 
such custom as to the draft in suit.^* 

§ 80. Contracts and dealings between banks in general. 

There are a few general rules governing the deal- 
ings between the initial and the correspondent bank, 
which are of considerable importance. One is that, in 
contracting for mutual arrangements for collections, 
banks are presumed to agree that each will act accord- 
ing to the general well-established and recognized rules 
and customs of the banking business.'* Another is that 
there is an implied agreement that the funds realized 
shall be mingled with the general funds of the collect- 
ing bank; and this rule is perfectly consistent with an 
express agreement between the banks for daily remit- 
tances.^^ A third rule is that an implied agreement 
to continue in business as a bank enters into the ex- 
press contracts between banks for mutual services in 
making collections, and, after its failure, the collecting 
bank has no authority to act in the matter, much less 
to receive paj^ment.^" 

23 Davis V. First Nat. Bank of Fresno, 118 Cal. 600, 50 Pac. 666. 

2* First Nat. Bank of Richmond v. Davis, 114 N. C. 343, 19 S. 
B. 280, 41 Am. St. Rep. 795; Planters' & Farmers' Nat. Bank of 
Baltimore v. First Nat. Bank of Wilmington, 75 N. C. 534; Marine 
Bank v. Fulton Baiik, 2 Wall. (XJ. S.) 252. 

25 First Nat. Bank of Richmond v. Davis, 114 N. C. 343, 19 S. 
B. 280, 41 Am. St. Rep. 795. 

26 Manufacturers' Nat. Bank v. Continental Bank, 148 Mass. 553, 
(140) 



CIj. 5] EMPLOYMENT OF AGENTS, ETC. g 81 

§ 8.1. Employment of notaries, and liability for their acts 
and defaults. 

There is no doubt but that the collecting bank may 
avail itself of the services of a notary in making its 
collection ;^^ and one employed by the cashier of the 
collecting bank will be considered as having been cm- 
ployed by the bank.^® But Avhen it comes to determin- 
ing the liability or nonliability^ of the bank for the acts 
and omissions of the notary selected by it, we at once 
encounter a direct conflict in the authorities; a con- 
flict primarily growing out of a difference of opinion 
as to the exact relation between the collecting bank and 
its customer. We have adopted the bailment theory 
of the relation,^^ and under this theory, notaries em- 
ployed by the bank as bailee are its own agents, for 
whose acts and defaults it is liable.^" This position 
necessarily involves the adoption of the rule that the 
bank, in accepting paper for collection, undertakes to 
"collect" in the full sense of the term, and to perform 

20 N. E. 193, 12 Am. St. Rep. 598, 2 L. R. A. 699; First Nat. Bank 
of Crown Point v. First Nat. Bank of Richmond, 76 Ind. 561, 40 
Am. Rep. 261; Cragie v. Hadley, 99 N. Y. 131; Audenried v. Bet- 
teley, 8 Allen (Mass.) 302. 

27 Warren v. Oilman, 17 Me. 360. 

28 Warren v. Oilman, 17 Me. 360. 

Representation of bank by cashier in general, see ante, § 37. 

29 See ante, § 2. 

8o_Davey v. Jones, 42 N. J. Law, 29, 36 Am. Rep. 505; Thompson 
V. State Bank, 3 Hill (S. C.) 77, Riley's Law Cases, 81 ; Ayrault 
V. Pacific Bank, 47 N. Y. 570, affirming 6 Rob. 337, 1 Abb. P- fN. 
S.) 381; Montillet v. Bank of United States (La.) 1 Mart. (N. S.) 
365; Oakey v. Bank of Louisiana, 17 La. 386; Pritchard v. Louisi- 
ana State Bank, 2 La. 415; Miranda v. City Bank of New Orleans, 
6 La. 740, 26 Am. Dec. 493. 

(141) 



§ 81 BANK COLLECTIONS. [Ch. 5 

all acts necessarily incidental to collection ;^^ and it is 
believed that this rule is sound. As a necessary result 
of these doctrines, the notary employed by the collect- 
ing bank is not liable to the owner for his defaults or 
mistakes in making protest, there being no privity be- 
tween them.^^ 

In New York, the custom of employing a notary to 
make presentment and give notice of dishonor does not 
excuse the bank from making proper presentment and 
giving due notice, since the notary is the agent of the 
bank, and the positive legal duty of the bank and its 
selected agent cannot be varied by custom.^^ But the 
majority of the courts of the various states of the Union 
that have passed on the question, and the federal courts, 
have adopted the contrary rule, that if the collecting 
bank uses reasonable care in the selection of the notary, 
it is not liable for his acts or defaults.^* If, therefore, 

31 See ante, § 26, and post, § 116. 

32 Oakey v. Bank of Louisiana, 17 La. 386, 388. Contra, see 
Britton v. NiccoIIs, 104 U. S. 757. See, also, Hyde v. Planters' 
Bank of Mississippi, 17 La. 560. 

33 Ayrault v. Pacific Bank, 47 N. Y. 570, 7 Am. Rep. 489, affirm- 
ing 6 Rob. 337, i Abb. Pr. (N. S.) 381. 

See, also, Allen v. Merchants' Bank of New York, 15 Wend. (N. 
Y.) 482, where it was held that, in the absence of a prior judicial 
determination of the question, the holder may show that it was 
customary for a bank receiving paper for collection to assume 
the obligation to answer for the negligence or default of its agents. 

31 First Nat. Bank of Manning v. German Bank of Carroll County, 
107 Iowa, 543, 78 N. W. 195; Citizens' Bank of Baltimore v. Howell, 
8 Md. 530; Tiernan v. Commercial Bank of Natchez, 7 How. (Miss.) 
648; Agricultural Bank v. Commercial Bank of Manchester, 7 
Smedes & M. (Miss.) 592; Bellemire v. Bank of United States, 4 
Whart. (Pa.) 105; Britton v. NiccoUs, 104 U. S. 766; Warren Bank 
V. Suffolk Bank, 10 Gush. (Mass.) 582; Stacy v. D'ane County Bank, 

(142) 



<3h. 5] EMPLOYMENT OF AGENTS, ETC. R 82 

it may properly be said that the rule adopted by the 
greater number of courts is the better rule of law, the 
rule that the collecting bank fully performs its duty 
by using due care in the selection of a notary is cer- 
tainly the better rule. Pursuant to this latter theory, 
it has been held that it is presumed that a notary pub- 
lic, properly commissioned, is a fit person for the col- 
lecting agent to intrust with the protest of commercial 
paper ;^^ and that, in the absence of special agreement, 
the collecting bank, which has turned the paper over 
for protest to the notary usually employed by it for 
that purpose, is not liable for his failure to perform 
his duty.^" 

§ 82. Notary an officer or employe of bank. 

There is also some difference of judicial opinion on 
the question of the liability of the bank in case the 
notary employed by it is a regular officer or employe 
of the bank. In Nebraska it has been held that where 
a bank receives a bill for collection, with orders to 
protest it if not paid, and it is delivered to the presi- 
dent of the bank, who is also a notary public, for pro- 

12 Wis. 629; May v. Jones, 88 Ga. 308, 14 S. E. 552; First Nat. 
Banh; v. Butler, 41 Oliio St. 519; Isliam v. Post, 141 N. Y. 100, 38 
Am. St. Rep. 775, note, 35 N. E. 1084; Mecliem, Agency, § 514; 3 
Am. & Eng. Enc. Law (2d Ed.) 808. 

In Stacy v. Dane County Banli, 12 Wis. 629, tlie notary demanded 
payment before the note was due, and deposited the notice for the 
indorser in the postoffice. The indorser was absent from the 
city, but had a" residence therein. 

35 Stacy V. Dane County Banlj, 12 Wis. 629, 635. 

36 Citizens' Bank of Baltimore v. Howell, 8 Md. 530, 63 Am. Dec. 
714. 

(143) 



§ 83 BANK COLLECTIONS. [Ch. S 

test, but such president, with knowledge of the order 
to protest, delays noting for protest or giving notice 
for such a time as effects a discharge of the indorsers, 
the notary is the agent of the bank, and the bank is 
liable for his default.^^ But in Georgia it has been 
held that a bank is not liable for the acts of its notary 
in maliciously and wrongfully publishing the protest of 
a bill of exchange, though he was also an employe of 
the bank.^® Here, however, the notary obviously went 
outside of the scope of the ordinary duties of a notary. 
How the liability of the bank is affected by the fact 
that the notary it employs is a public oflflcer, as well as 
an officer or employe of the bank, is considered in the 
next section. 

§ 83. Notary a public officer. 

That a notary is a public officer, one of whose offi- 
cial duties it is to properly protest negotiable paper 
delivered to him for that purpose, is deemed by some 
courts sufficient reason for relieving the collecting bank 
from all liability for his acts or defaults.^^ Where the 

sTWood River Bank v. First Nat. Bank of Omaha, 36 Neb. 744, 
55 N. W. 239; Commercial Bank of Kentucky v. Barksdale, 36 
Mo. 563. 

38 May V. Jones, 88 Ga. 308, 14 S. B. 552, 15 L. R. A. 637, 30 Am. 
St. Rep. 154. 

39 Britten v. Niccolls, 104 U. S. 757; Hyde v. Planters' Bank of 
Mississippi, 17 La. 560; Stacy v. Dane County Bank, 12 Wis. 629; 
First Nat. Bank of Manning v. German Bank of Carroll County, 
107 Iowa, 543, 78 N. W. 195; Baldwin v. Bank of Louisiana, 1 La. 
Ann. 13; Tiernan v. Commercial Bank of Natchez, 7 How. (Miss.) 
648; Agricultural Bank v. Commercial Bank of Manchester, 7 
Smedes & M. (Miss.) 592; Bowling v. Arthur, 34 Miss. 41; May v. 
Jones, 88 Ga. 308, 311. 

(144) 



Ch. 5] EMPLOYMENT OF AGENTS, ETC. § gj 

notary employed is not only a public officer, but also 
an officer or employe of the bank, the rule in some states 
is tliat the bank is not liable for his acts or defaults, 
because his private status is merged in his public status, 
as to acts prescribed by law as part of his official 
duties." 

On this point, Lumpkin, J., speaking for the supreme 
court of Georgia, says : "The plaintiff's theory is that, 
as Jones, the notary public, was also an employe and 
agent of the bank, 'the action of defendant Jones in 
the matter, he acting under the authority of the de- 
fendant bank, is the action of said bank.' This is all 
the allegation touching the bank's liability. Although 
there is conflict in the cases, the prevailing and better 
holding seems to be that a bank is not liable for the 
negligence or misconduct of a notary employed by it to 
protest negotiable paper. The reason is that the no- 
tary is not a mere agent or servant of the bank, but is 
a public officer, sworn to discharge his duties properly. 
He is under a higher control than that of a private prin- 
cipal. He owes duties to the public, which must be the 
supreme law of his conduct. Consequently, when he 
acts in his official capacity, the bank no longer has 
control over him, and cannot direct how his duties 
shall be done. * * * That the notary is also an 
employe and agent of the bank does not alter the case. 
There is still a sharp dividing line between his duties 
as agent and his duties as a public officer. When his 

*oMay V. Jones, 88 Ga. 308, 311; First Nat. Bank of Manning 
V. German Bank of Carroll County, 107 Iowa, 543, 78 N. W. 195; 
Baldwin v. Bank of Louisiana!, 1 La. Ann. 13; Gerhardt v. Boat- 
man's Savings Inst, 38 Mo. 60, 67. 

(145) 



§ 84 BANK COLLECTIONS. [Ch. 5 

public service comes into play, his private service is for 
the time suspended."*^ But it is also held that if the 
statutes of the state where the notary was appointed 
do not authorize or require him to protest commercial 
paper, the bank is liable for his acts and defatilts, the 
reason being that he is not, in such case, acting in an 
official capacity.*^ Thus, where the notary was regu- 
larly employed by the bank at a fixed salary, and the 
instrument regarding which he was negligent was a 
negotiable note, which could be protested by any per- 
son under the statutes of the state, the bank is liable 
for his negligence, though he is also a public officer, 
as, in the case at hand, it was not necessary to employ 
him, and he' therefore acted as the bank's agent, and 
not as an independent officer.*^ 

Another doctrine under which the bank is relieved 
from liability is that, though the notary employed by 
the collecting bank be a regularly commissioned public 
officer, the owner impliedly consents to his employment 
by the bank as part of the contract of collection, and 
thus makes the notary his subagent, for whose de- 
faults the bank is not chargeable.** 

§ 84. Employment of agents other than notaries and banks, 
and liability for their defaults. 

In Kansas, the rule determining the liability of the 
collecting bank for defaults of its selected agents other 

*i May V. Jones, 88 Ga. 308, 311. 

12 Allen V. Merchants' Bank of New York, 22 Wend. (N. Y.) 215, 
34 Am. Dec. 289; Gerhardt v. Boatman's Savings Inst., 38 Mo. 60, 
67; Bank of Llnsborg v. Ober, 31 Kan. 599, 3 Pac. 324. 

43 Gerhardt v. Boatman's Savings Inst., 38 Mo. 60, 67. 

4-1 Pa-ik V. Butler, 41 Ohio St. 519, 52 Am. Rep. 94. 
(146) 



Ch-5] EMPLOYMENT OF AGENTS, ETC. 8 84 

than notaries or correspondent banks is found in a de- 
cision holding that a collecting bank, whose only in- 
structions were, "when due, collect, and apply proceeds 
to my paper," is liable to the depositor of the paper 
for the default of one voluntarily selected by the bank 
to make presentment, who collected the amount of the 
paper, but failed to turn over the proceeds; such per- 
son being the agent of the bank only.*^ 

In a case where the bank either lost a note sent to it 
for collection, or negligently permitted it to get into 
the hands of an unauthorized person, Mho collected it, 
it was held that an agency between such person and the 
bank could not be shown by evidence of his declarations 
to that effect, there having been no prior evidence estab- 
lishing a prima facie case of agency.*" 

(B) Liability of Initial Bank for Default of Cor- 
respondent. 

There is an irreconcilable conflict of authority on the ques- 
tion of the liability of the initial collecting bank for the acts 
and defaults of its correspondent bank. The rule in force in 
England, and adopted in New York and several of the other 
states, is that the initial bank is liable for the defaults of its 
selected correspondent, on the ground that the correspondent 
is the agent of the initial bank only. This rule is consistent 
with the bailment theory of the relation between the initial 
hank and its customer. 

On the other hand, the rule in force in Massachusetts, and 
followed in many of the states, is that the owner of paper 

*!■ First Nat. Bank of Girard v. Craig, 3 Kan. App. 166, 42 Pac. 
830; Cummins v. Heald, 24 Kan. 600. See, also, Bank of Linds- 
borg V. Ober, 31 Kan. 599, 3 Pac. 324. 

*6 McClure v. D. M. Osborne & Co., 86 111. App. 465. 

(147) 



§ 85 BANK COLLECTIONS. [Ch. 5 

payable at a distance, by depositing it in a local bank for col- 
lection, impliedly assents to the employment of a bank at the 
place of payment, and that, consequently, the correspondent is 
an agent of the owner, and that the initial bank is not liable 
for its defaults if it used due care in selecting the correspond- 
ent. 

The rule that the initial bank is liable for the defaults of 
its correspondents may be modified or negatived by proof of a 
special agreement to the contrary. 

Some courts hold that such rule may be negatived by proof 
of a general custom to the contrary. 

As a necessary corollary to the rule that the initial bank is 
liable for the defaults of its correspondent is the rule that the 
initial bank has a remedy over against the correspondent for 
all such defaults of the latter as render the former liable to 
the owner. 

§ 85. In general. 

The question of the liability of the initial collecting 
bank for the acts or defaults "of its correspondent bank 
in making or failing to make the collection is one that 
presents a conflict of authorities which is absolutely 
irreconcilable. One line of authorities holds that, in the 
absence of special agreement to the contrary, a bank 
receiving for collection paper payable at a distance is 
liable for the acts and defaults of its correspondents; 
the other line of authorities exonerates the initial 
bank if it has used reasonable care in the selection of 
the correspondent. 

We shall defer drawing any conclusions as to which 
is the better doctrine until we have thoroughly ex- 
amined all the cases, and have set forth at length and 
examined the reasoning used to sustain each doctrine. 
(148) 



Ch. 5] EMPLOYMENT OP AGENTS, ETC. § 87 

§ 86. England. 

The court of king's bench, in Van Wart v. Woolley,*'' 
briefly but emphatically lays down the rule that the 
initial bank is liable for the defaults of its chosen cor- 
respondent; and, in a later case,** the house of lords 
affirmed the n^le, without qualification, using the old 
maxim, qui facit per alium, facit per se. 

§ 87. Federal courts of the United States. 

Whatever confusion may have resulted from the un- 
certainty as to the exact holding of the supreme court 
of the United States in the early case of Bank of Wash- 
ington V. Triplett,*^ it is certain that all confusion and 
uncertainty as to the position of that court has been 
overcome in Exchange National Bank v. Third National 
Bank.^" Before taking up the issue, the court, in that 



i^ 3 Barn. & C. 439, 444. 

*8 Mackersy v. Ramsays, 9 Clark & P. 818, 849-852. See, also, 
Prideaux v. Crlddle, L. R. 4 Q. B. 455; Cobb v. Becke, 6 Q. B. 930. 

48 1 Pet. (XJ. S.) 25. The opinion in this case states that the 
paper was delivered to the bank for "the purpose of being trans- 
mitted," and the case has been cited by the adherents of each 
theory; one side contending that the decision in the case that the 
initial bank was not liable for the defaults of its correspondent 
was due solely to the fact that the original contract was merely 
for "transmission," and not for "collection;" the other side con- 
tending that the word "transmission" was used in a broader sense, 
and that there was nothing in the case to show but that the un- 
dertaking was an ordinary contract for "collection," and hence 
maintaining that the case was authority for the doctrine that the 
initial collecting bank is not liable for the defaults of its corre- 
spondents, but that the latter are the agents of the owner. 

50 112 U. S. 276, 5 Sup. Ct. 141. See, also. Hoover v. Wise, 91 
U. S. 308; Hyde v. Pirst Nat. Bank of Lacon, 7 Biss. 156, Ped. 
Cas. No. 6,970. 

(149) 



§ 87 BANK COLLECTIONS. [Ch. 5 

case, makes the following general observations: "The 
question involves a rule of law of general application. 
Whatever be the proper rule, it is one of commercial 
law. It concerns trade between different and distant 
places, and, in the absence of statutory regulations or 
special contract or usage having the force of law, it 
is not to be determined according to the views or in- 
terests of any particular individuals, classes or locali- 
ties, but according to those principles which will best 
promote the general welfare of the commercial com- 
munity." The court then states its decision of this dis- 
puted point as follows : "Whether a draft is payable 
in the place where the bank receiving it for collection 
is situated, or in another place, the holder is aware that 
the collection must be made by a competent agent. In 
either case, there is an implied contract of the bank 
that the proper measures shall be used to collect the 
draft, and a right, on the part of its owner, to presume 
that proper agents will be employed, he having no 
knowledge of the agents. There is, therefore, no rea- 
son for liability or exemption from liability in the one 
case which does not apply to the other. * * * The 
distinction recurs between the rule of merely personal 
representative agency and the responsibility imposed 
by the law of commercial contracts. This solves the 
difficulty, and reconciles the apparent conflict of de- 
cision in many cases. The nature of the contract is 
the test. If the contract be only for the immediate 
services of the agent, and for his faithful conduct as 
representing his principal, the responsibility ceases 
with the limits of the personal services undertaken. 
But where the contract looks mainly to the thing to 
(150) 



(Jh. 5] EMPLOYMENT OF AGENTS, ETC. § 88 

be done, and the undertaking is for the due use of all 
proper means to performance, the responsibility ex- 
tends to all necessary and proper means to accomplish 
the object, by whomsoever used." 

§ 88. New York. 

The leading case in New York is Allen v. Merchants' 
Bank,5i holding that the initial collecting bank is liable 
to the owner of paper payable at a distance for the 
default of a correspondent bank at the place of pay- 
ment, to Avhich it sent the paper for collection; the 
specific default being the failure of a notary, employed 
by the correspondent bank, to give notice of dishonor. 
The ground of the decision is that the initial bank un- 
dertakes to "collect" the paper, and that any banks 
employed by it to assist in the collection are its own 
agents, and not the agents of the owner of the paper. 
This decision is severely criticised by the courts hold- 
ing the opposite view, mainly on the ground that it 
was rendered by a divided court ; fourteen senators hav- 
ing concurred in the decision, and ten, including the 
chancellor, having dissented. But however divided the 
court may have been on the question at that time, both 
the supreme court and the court of appeals have since 
uniformly adopted and applied the rule on reason as 
well as on the principle of stare decisis.^^ 

5122 Wend. (N. Y.) 215, reversing 15 Wend. 482. 

52 Montgomery County Bank v. Albany City Bank, 7 N. Y. 459; 
Commercial Bank of Pennsylvania v. Union Bank of New York, 
11 N. Y. 203, affirming 19 Barb. 391, 1 Kern. 203; Naser v. First 
Nat. Bank, 116 N. Y. 498; Saint Nicholas Bank v. State Nat. Bank, 
128 N. Y. 26, 27 N. E. 849; Castle v. Corn Exchange Bank, 148 N. 

(151) 



§ 88 BANK COLLECTIONS. [Ch. 5 

Strictly in harmony Avith this rule, it has also been 
held in New York that, where the initial bank sends a 
draft for collection to its correspondent, which, in turn, 
sends the paper to its correspondent at the place of 
payment, the two correspondent banks are not jointly 
liable to the initial bank for failure of the bank at the 
place of payment to present the paper and give notice 
of nonpayment; but the latter bank is liable only to 
its immediate correspondent, which is liable severally 
to the initial bank.^^ 

The same rule has been applied in New York to ex- 
press companies, and it has been held that where a note 
delivered to an express company for collection at a 
place beyond its line is turned over by it to another 
express company, the latter company becomes the agent 
of the former, and the first company is liable for the 
negligence of such agent, and for its noncompliance 
with instructions accompanying the note.^* This hold- 
ing is based on the theory that a contract to carry, and 
not a contract to forward, arises where a note is de- 

Y. 122, 42 N. E. 518; Kirkham v. Bank of America, 26 App. Div. 
110, 49 N. Y. Supp. 767, affirmed 'n 165 N. Y. 132, 58 N. E. 753. 

In an early case (1847) decided by the circuit judge of the then 
New York circuit, it was held that a bank sending paper, payable 
at a distance, to a collecting agency at the place of payment, was 
not liable for its defaults. Escharte v. Clark, 2 Edm. Sel. Gas. 
(N. Y.) 445. 

53 Montgomery County Bank v. Albany City Bank, 7 N. Y. 459, 
464, affirming 8 Barb. 396. The objection that defendants are not 
jointly liable may be taken at the trial. Id. 

5* Palmer v. Holland, 51 N. Y. 416, 10 Am. Rep. 616. In this 
case the owner of the note did not know, at the time the note was 
delivered to the first company, that its line did not extend to the 
place where the note was payable. 
(152) 



Ch. 5] EMPLOYMENT OF AGENTS, ETC. § 90 

livered to an express company with directions to take 
it to the place of the maker's residence and present it, 
and to sue and collect it in case of nonpayment.^^ The 
analogy between this contract to "carry" and a bank's 
contract to "collect" is apparent. 

§ 89. New Jersey. 

The Xew Jersey court of errors and appeals, in 
adopting the English and New York rule that the initial 
bank is liable for the defaults and mistakes of its 
chosen correspondents, states that, the rule is no hard- 
ship on the bank, as it can always look to its corre- 
spondent bank, to which transmission is made, for in- 
demnification from its neglect.^" In this case, the 
court, in cominenting on the contrary position of the 
Massachusetts court,^'' states: "The decisions in Mas- 
sachusetts, which our courts are accustomed to respect, 
are much weakened by the fact that in the first case 
reliance was had upon the decision of the supreme 
court of New York in Allen v. Merchants' Bank, which 
was afterwards reversed in the court of errors,^^ and 
on the misapprehension that it was the opinion of the 
supreme court of the United States in Bank of Wash- 
ington T. Triplett.^^ 

§ 90. Ohio. 

When the supreme court of Ohio came to the parting 

65 Palmer v. Holland, 51 N. Y. 416, 10 Am. Rep. 616. 
56 Titus V. Mechanics' Nat. Bank, 35 N. J. Law, 588. 
ST See post, § 99. 
■"■s See ante, § 88. 
50 See ante, § 87. 

(153) 



§ 92 BANK COLLECTIONS. [Ch 5 

of the ways, it deliberately chose to follow the path 
marked out by the English and the New York courts. 
Its decision is consequently that the correspondent bank 
is the agent of the transmitting bank, and not a sub- 
agent of the owner.^" The later decisions in the same 
state are strictly in harmony with this first decision."^ 

§ 91. Georgia. 

In the iirst and leading case in Georgia, the supreme 
court of that state, in adopting the rule that the initial 
bank is liable for the defaults of its correspondents, 
bases its decision on the general rules of agency, and 
states that, "in the selection of the correspondent, the 
customer for whom the collection is to be made is not 
consulted. As a rule, he does not know the name or 
the financial standing of the correspondent, and it is 
not contemplated that they shall have any communi- 
cation with each other." ®^ The court in this case also 
states that the doctrine that the initial bank is re- 
sponsible for the acts of its subagents is not only in 
accord with the principles of agency, but with consid- 
erations affecting the general welfare of the commer- 
cial community. 

§ 92. Michigan. 

The supreme court of Michigan has expressed its 
opinion on this question in no uncertain language. In 

60 Reeves v. State Bank, 8 Ohio St. 465. 

61 First Nat. Bank of Cincinnati v. Moore (Ohio) 8 Am. Law Rec. 
97, 4 Wkly. Law Bui. 291; Young y. Noble's Bx'rs, 2 Disn. (Ohio) 
485. 

62 Bailie v. Augusta Sav. Bank, 95 Ga. 277, 21 S. B. 717. 

(154) 



Ch. 5] EMPLOYMENT OF AGENTS, ETC. § 92 

the leading Michigan case the court says : "As long as 
banks and bankers or other persons hold themselves out 
to collect such bills or drafts for a compensation, or 
their advantage, they ought to be governed by the same 
rules of law that apply to other persons, and if they 
wish to avoid responsibility, it is very easy for them to 
accept such business only on a special agreement as to 
their duties and liabilities. Failing to do this, I think 
they must, in taking such bills or drafts, be responsible, 
as other business men are, for the misconduct of their 
selected agents at home or abroad." ^^ 

The court thus refuses to recognize any distinction 
between the duty and liability of the bank in case the 
paper is payable in the place where it does business or 
at a distance, and its further reasoning is as follows: 
"The learned jurists holding otherwise all admit that, 
if a person intrusts a home draft or bill to a bank for 
collection, such bank is responsible to the customer for 
any negligence or default of its agents, officers, or em- 
ployes. I cannot see why any different rule should 
prevail in the collection of a foreign bill. It is, in every 
case that I have examined, sought to be maintained 
upon the theory that the customer knows the bank must 
act through some other person or persons at a distance, 
and therefore impliedly, from the very nature of the 
course of business, assents to the employment of such 
persons, and makes them his agents. This reasoning 
does not strike me as sound. If I leave an indorsed 
note against persons in my own town for collection, 

63 Simpson v. Waldby, 63 Mich. 439, 30 N. W. 199. 

(155) 



§ 93 BANK COLLECTIONS. [Ch. 5 

and consequent demand and protest, I know that some 
agent or employe of the bank will do the work, or some 
part of it, and I do not know or inquire who will do it. 
I contract, however, with the bank that suitable agents 
will be employed, and hold it responsible for their acts. 
The law authorizes me to do this. If I intrust the same 
bank with the collection of a foreign draft, I also know 
that it will employ some agent or correspondent abroad, 
of their selection, not mine, ,of whom I know nothing, 
and with Avhom they are supposed to have business re- 
lations. I do not inquire whom they are to select. I 
presume, and have a right to presume, that they have 
business knowledge of such agent or agents, which I 
do not and cannot possess, by the very course of their ^ 
dealings as bankers. In each case the bank holds itself 
out, for a consideration, to collect my paper, and it 
can make no difference whether the compensation is 
great or small. In each case it selects its own agents 
in the premises. In each case I have no part in or con- 
trol over such selection. In each case there is no privity 
between the party selected and myself. I fail to per- 
ceive why, in the one case more than the other, I adopt 
the immediate party collecting or protesting the bill as 
my agent. I cannot find any good reason for making 
this particular case of the collection of a foreign bill 
an exception to the general rule of agency."®* 

§ 93. Minnesota. 

The Minnesota supreme court employs similar rea- 
soning, and, among other things, says : "The plaintiffs 
had no voice in the selection of appellant's agent or cor- 
respondent, and it is difficult to see why banks and bank- 

0-1 Simpson v. Waldby, 63 Mich. 451, 30 N. W. 199, 205. 
(1.56) 



Ch. 5] EMPLOYMENT OP AGENTS, ETC. § 95 

ing houses should be exempt from the application of a 
cardinal and well-established principle of law that 
every person is liable for the acts of such agents as may 
be appointed or designated by him to transact such 
business as he has undertaken to perform for others. 
The appellant, having undertaken the collection of the 
paper, stands in the attitude of an independent con- 
tractor, who, having unrestrained liberty so to do, has 
designated a subagent, and is therefore answerable for 
his neglect, failure, or default."®^ 

§ 94. Montana. 

The supreme court of Montana, after a very thorough 
discussion of all the cases, holds that, "in the absence 
of a special contract, a bank is absolutely liable for 
any laches, negligence, or default of its correspondent, 
whereby the holder of negotiable paper suffers loss;" 
and states that "banks can easily avoid the effects of 
this stringent rule by making special contracts in spe- 
cial cases, or declining to undertake collections at 
points where they have any fears as to the reliability 
or solvency of the agents whom they will be obliged to 
employ.""^ 

§ 95. North Dakota. 

In North Dakota, the relation of the parties is deter- 
mined in a recent case ( 1899 ) holding that, where notes 
are indorsed to a bank for collection, and the bank 
forwards them to a bank in another city for collection, 

65 Streissguth v. National German-American Bank, 43 Minn. 50, 
44 N. W. 797. 

66 Power V. First Nat. Bank of Fort Benton, 6 Mont. 251, 270. 

(157) 



§ 96 BANK COLLECTIONS. [Ch, 5 

the latter bank becomes the agent of the former, as 
between them, and is also a siibagent of the payees of 
the notes.'^'^ As to the liability of the parties, the court, 
after mentioning the conflict of authorities, says: 
"But in this state the controversy' has been set at rest 
by section 4133 of the Revised Codes, which is as fol- 
lows : "A mere agent of an agent is not responsible as 
such to the principal of the latter.' Applying this rule 
to the case at bar, the defendant (correspondent bank) 
is not legally responsible to E. P. R. & Co. [the payees], 
who own the notes in question, and who are the prin- 
cipals of the plaintiff. The owners of the notes have 
no contractual relations with the defendant. They 
dealt solely with the plaintiff [initial bank], and, un- 
der the rule of law which obtains in New York and 
in this state, they are required only to look to the plain- 
tiff for redress or damages for any acts of negligence 
to their detriment, done either by the plaintiff or by 
agents appointed by the plaintiff."®* The court then 
states that, as a necessary corollary, the initial bank 
may compel the correspondent bank to respond in dam- 
ages to it for any negligence of the latter bank for which 
the former must respond to the owners.^® 

§ 96. South Dakota. 

South Dakota has fallen into line in a decision that, 
where a note payable at a bank is sent to that bank for 

67 Commercial Bank v. Red River Valley Nat. Bank, 8 N. D. 382, 
79 N. W. 859. 

S8 Commercial Bank v. Red River Valley Nat. Bank, 8 N. D'. 382, 
79 N. W. 859. 

00 See post, § 120. 

(158) 



Ch. 5] E3MPL0YMENT OP AGENTS, ETC. § 9s 

collection, without special instructions, but indorsed for 
collection and remittance, the bank has no implied 
authority to employ another bank in another city to 
make the collection, and one so employed is the agent 
of the bank, and not of the owner, so that a payment to 
the second bank is not a payment to the ownerJ" It 
will be seen, however, that in this case the note was sent 
for collection to the bank where it was payable, and 
that it is this bank which is denied the right to employ 
a subagent for the owner, or, as the court expresses it, 
to "delegate its poAvers." 

^ 97. Colorado. 

The question has n,ot yet been squarely presented to 
the courts of Colorado, but the supreme court of that 
state, in deciding that a bank primarily liable on the 
paper is not a suitable subagent for its collection, seems 
to intimate that if the question had been fairly pre- 
sented it would have held the transmitting bank liable 
for the defaults of its chosen correspondent, for it says : 
"Even if we were to follow the rule that the collecting 
bank could relieve itself from liability by sending the 
paper in due season to a suitable agent, with proper 
instructions, we feel constrained to hold" that the agent 
must be some one other than the party who is to make 
payment.^^ 

§ 98. Texas. 

In the first Texas case passing on the question the 

70 Sherman v. Port Huron Engine & Thresher Co., 8 S. D. 343, 66 
N. W. 1077. 

"1 German Nat. Bank of Denver v Burns, 12 Colo. 539, 544. 

(159) 



g 99 BANK COLLECTIONS. [Ch. 5 

court of civil appeals adopts the theory that the initial 
bank is liable for the defaults of all its correspondents 
and agents.''^ Strictly in harmony with this decision 
is a later one by the same court, that where a note is de- 
posited in a bank to be collected at a distant point, 
where such bank has no regular agent or correspondent, 
and it transmits the note to a bank at such place for 
collection and remittance, in the absence of special 
agreement or binding custom, the second bank is the 
agent of the first, and not of the owner, and that the 
first is responsible to the owner for the defaults of the 
secondJ^ 

§ 99. Massachusetts. 

The first Massachusetts case passing directly on the 
question is Fabens v. Mercantile Bank,'^* which is 
usually considered as the leading case for the doctrine 
that the initial bank is not liable for the defaults of its 
correspondent, if it used due care in selecting the cor- 
respondent. The decision is very concise, and states 
that, "when a note is deposited with a bank for collec- 
tion, which is payable at another place, the whole duty 
of the bank so receiving the note in the first instance 
is seasonably to transmit the same to a suitable bank 
or other agent at the place of payment. And as a part 

72 state Nat. Bank of Ft. Worth v. Thomas Mfg. Co., 17 Tex. 
Civ. App. 214, 42 S. W. 1016, citing Exchange Nat. Bank of Pitts- 
burgh V. Third Nat. Bank of New York, 112 U. S. 276, 5 Sup. Ct. 
Rep. 141. 

73 Schumacher v. Trent, 18 Tex. Civ. App. 17, 44 S. W. 460. 

74 23 Pick. (Mass.) 330. See criticism of this decision by supreme 
court of New Jersey, ante, § 89. 

(160) 



Ch. 5] EMPLOYMENT OP AGENTS, ETC. § 100 

of the same doctrine, it is well settled that, if the ac- 
ceptor of a bill or promisor of a note has his residence 
in another place, it shall be presumed to have been in- 
tended and understood between the depositor for col- 
lection and the bank that it was to be transmitted to 
the place of the residence of the promisor, and the same 
rule shall then apply as if, on the face of the note, it 
was payable at that place." This rule has been since 
consistently followed in Massachusetts,^^ and, as we 
shall see, in many of the other states. 

§ 100. Connecticut. 

In Connecticut, the question arose in a case where 
the initial collecting bank had indorsed the bill in blank, 
and forwarded it for collection to another bank, which 
also indorsed it in blank for collection to a bank at the 
place of payment. The money was paid to the last 
bank, and the owners of the bill sued it for money had 
and received for their use. Eecovery was allowed on 
the ground that "all the indorsees were merely agents 
of the plaintiffs for the collection and transmission of 
their money." ^® 

Later, in East Haddam Bank v. Scovil,'^^ the question 
of liability or nonliability of the initial collecting bank 
for the defaults of its correspondent was squarely pre- 
sented, and the court, after stating that the bill was 
payable in a city other than the city where the initial 

Ts Dorchester and Milton Bank v. New England Bank, 1 Gush. 
(Mass.) 177; Warren Bank v. Suffolk Bank, 10 Gush. (Mass.) 582 
(default of notary). 

78 Lawrence v. Stonington Bank, 6 Gonn. 521, 527. 

77 12 Conn. 303, 314. 

(161) 



§ 101 BANKi COLLECTIONS. [Ch. 5 

bank did its business, says: "Under such circum- 
stances, it cannot justly be claimed that the plaintiffs 
[initial bank] should have become insurers against the 
defaults of their correspondents. Such a doctrine 
would be as inequitable as it might be oppressive and 
ruinous to banks Avho are merely the medium through 
which the holders of bills and drafts, payable in other 
states, transmit them for collection. If they act in good 
faith in the selection of an agent to protect the interests 
of the holder of the bill, in cases where it is obvious 
an agent must be selected for such purpose, what prin- 
ciple of justice or commercial policy requires that they 
should be held liable for any neglect of duty on the 
part of such agent? To impose this liability would 
make a special contract excluding it necessary in all 
cases; or it would render the collection of bills of this 
description extremely difScult." 

§ 101. Pennsylvania. 

Pennsylvania can hardly be said to sanction the broad 
rule that the transmitting bank is liable for the acts 
and defaults of its chosen correspondents. The first 
case. Mechanics' Bank v. Earp,"^ held the initial bank 
not liable for the default of its correspondent at the 
place of payment, because the owner gave specific in- 
structions as to the manner of presentment at the place 
of payment at the time of the initial delivery for col- 
lection, and that, consequently, the contract was merely 
to "transmit," and not to "collect." 

78 4 Rawle (Pa.) 384. See, also, Belleraire v. Bank of United 
States, 4 Whart. (Pa.) 104. 
(162) 



Ch. 5] EMPLOYMENT OF AGENTS, ETC. § 101 

Later decisions in Pennsylvania are to the effect that 
a bank receiving commercial paper for "transmission" 
only is not liable for the defaults of its correspondent 
if it exercised due care in the selection of such corre- 
spondent; otherwise, if it accepted the paper for "col- 
lection;'"" and that a receipt "for collection" shows an 
undertaking to collect, and not a mere undertaking to 
remit for collection to some other person or bank, and 
hence a collection agency giving such a receipt is liable 
for the default of its selected agent, to whom it remitted 
the paper for collection.®" 

In a still later Pennsylvania case, a collection agency 
was held liable for the misconduct of an attorney into 
whose hands it placed the claim ; but it appeared from 
the receipt given that the claim Avas "to be forwarded 
by us for collection by suit or otherwise, at our discre- 
tion," and in the margin of the receipt were the words : 
"Collections made in all parts of the United States and 
Canada." 81 

It will thus be seen that the supreme court of Penn- 
sylvania practically requires a special express contract 
to "collect" as the foundation of any decision that the 
transmitting bank or agency is liable for defaults of its 

TO Wingate v. Mechanics' Bank, 10 Pa. St. 104. The court in this 
case takes pains to show the conformity of its decision to that in 
Mechanics' Bank v. Earp, 4 Rawle (Pa.) 384. 

«o Bradstreet v. Bverson, 72 Pa. St. 124,, 13 Am. Rep. 665. 

SI Morgan v. Tener, 83 Pa. St. 305. 

In the case of Siner v. Stearne, 155 Pa. St. 62, the same court, 
following Bradstreet v. Everson, 72 Pa. St. 124, 13 Am. Rep. 665, 
and Morgan v. Tener, 83 Pa. St. 305, holds that a collecting agency 
which undertook the actual "collection" of the claim was re- 
sponsible for the negligence of an attorney employed by it. 

(163) 



§ 103 BANK COLLECTIONS. [Ch. 5 

correspondent, and holds, in effect, that, in the absence 
of such special contract, the only duty of the initial 
bank is to transmit to a suitable correspondent. This 
interpretation of the Pennsylvania cases is expressly 
recognizefl by a statement in the case of Merchants' 
National Bank v. Goodman,*^ to the effect that: "In 
our state, the principle has, in several instances, been 
maintained that a collecting bank is an agent for trans- 
mission to a subagent to collect, and when this is prop- 
erly done, its duty is performed, and its responsibility 
is at an end," and by dicta in the same case to the same 
effect. 

§ 102. Maryland. 

The supreme court of Maryland refuses to sanction 
the doctrine that, in the absence of a special agreement 
or of special instructions, a bank receiving paper for 
collection thereby undertakes to do all that is proper 
and necessary to effect the collection, but adopts the 
doctrine that, if it selects a suitable subagent, it per- 
forms its whole undertaking.®^ 

§ 103. North Carolina. 

The supreme court of North Carolina follows the 
opinions and the wording of the Massachusetts deci- 
sions, and consequently holds that a subagent must 

82 109 Pa. St. 422, 427. 

83 Citizens' Bank of Baltimore v. Howell, 8 Md. 530. The exact 
point in the case was, however, as to the liability of the bank for 
the default of a notary. See, also, Jackson v. Union Bank, 6 Har. 
& J. (Md.) 146, where nonliability of the initial bank was based 
on proof of local custom. 

(164) 



Ch. 5] EMPLOYMENT OF AGENTS, ETC. § lu4 

necessarily be employed from the very nature of the 
undertaking, and that the assent of the owner of the 
paper must necessarily be implied, and hence, if the 
initial bank uses due care in the selection of a corre- 
spondent, it is not liable for its defaults.^* 

§ 104. Indiana. 

The Indiana cases have been usually cited as holding 
the initial bank liable for the defaults of its corre- 
spondents, but they will not bear such an interpreta- 
tion. 

The case of Tyson v. State Bank of Indiana*^ was an 
action against a bank for the negligence of one of its 
branches, and consequently the negligence of the bank 
itself, for a failure to present a bill either for accept- 
ance or payment, whereby all remedy on the bill was 
lost. The opinion proceeds entirely on the theory that 
there is only one bank in the case, and the decision is 
that the bank, "having undertaken, for a reasonable 
reward, to collect the plaintiff's debt, placed itself in 
the position of an agent or attorney, who, for reward, 
undertakes to perform services for another in the line 
of his business or profession. He is bound to a faith- 
ful discharge of his duty, and is responsible to his em- 
ployer for all damages arising from his neglect." 

The case of American Express Go. v. Haire,*® the 

84 Planters' & Farmers' Nat. Bank of Baltimore v. First Nat. 
Bank of Wilmington, 75 N. C. 534. 

85 6 Blackf. (Ind.) 225. 

86 21 Ind. 4. 

For liability of collecting attorney in Indiana, see Abbott v. 
Smith, 4 Ind. 452. 

(165) 



R 105 BANK COLLECTIONS. [Oh 5 

other Indiana case supposed to hold that the initial 
collecting bank is liable for the defaults of its corre- 
spondents or other agents, is not at all in point. In 
the first place, the collecting medium was an express 
company, and not a bank, and, in the second place, the 
exact holding was that the express company was liable 
to the owner for its OAvn negligence in not delivering 
the bill to a notary at the proper time, i. e., in deliver- 
ing it to the notary for demand and protest one day 
before demand and protest could be properly made, 
thereby misleading the notary into taking such steps 
prematurely, and discharging the drawer and the in- 
dorsers. 

The first and leading Indiana case which passes di- 
rectly on the question is Irwin v. Reeves Pulley Com- 
pany,*^ and the court there adopts the doctrine that 
the initial bank is not liable for the defaults of its 
correspondent, and discharges its full duty if it exer- 
cises reasonable skill and care in the selection of its 
correspondent ; on the theory, adopted generally in this 
class of decisions, that the owner impliedly consents 
to the employment of subagents to make the collec- 
tion at the place of payment. 

§ 105. Illinois. 

The courts of Illinois have consistently held, from 
the time when the first case involving the point came 
up for decision, that where paper payable at a distance 
or drawn on nonresidents is deposited for collection 

87 20 Ind. App. 101, 48 N. E. 601, 603, 50 N. E. 317, distinguishing 
Tyson v. State Bank, 6 Blackf. (Ind.) 225, and American Express 
Co. V. Hairs, 21 Ind. 4. 

(166) 



Ch. 5] EMPLOYMENT OF AGENTS, ETC. § 107 

with a local bank, such bank fully discharges its duty 
by transmitting the paper in due season to a suitable 
bank or agent at the place of payment, with proper 
instructions, and is not liable for loss occasioned by 
negligence or default of the agent so employed ; on the 
ground that, by depositing paper so payable, the owner 
impliedly consents to the employment of a subagent at 
the place of payment, and hence the latter is the agent 
of the owner, and not 'of the transmitting bank.*^ 

§ 106. Wisconsin. 

In Wisconsin, a case arose where, in view of the fact 
that there was no bank at the place of payment, the 
transmitting bank sent the paper to an express com- 
pany at such place. The court held that "the con- 
tract implied by the reception of the note against a 
party residing at a distance from its place of business" 
was not absolutely to make due presentment and give 
due notice, but to place the note in the hands of some 
competent and responsible agent doing" business at the 
residence of the maker, and that, having done this, it 
is itself discharged from liability."®^ 

§ 107. Iowa. 

In Iowa, the question was settled in the case of Gue- 
ss Waterloo Milling Co. v. Kuenster, 158 111. 259, 41 N. E. 906, 
29 L. R. A. 794, affirming 58 111. App. 61; Drovers' Nat. Bank v. 
Anglo-American Packing & Provision Co., 117 111. 100, affirming 
18 111. App. 191; Pay v. Strawn, 32 111. 295; Aetna Ins. Co. v. Alton 
City Bank, 25 111. 243, 247, 79 Am. Dec. 328; Anderson v. Alton 
Nat. Bank, 59 111. App. 587, 591; Carlinville Nat. Bank v. Wilson, 
78 111. App. 339, affirmed in 58 N. B. 250. 
89 Stacy V. Dane County Bank, 12 Wis. 629, 634. 

(167) 



§ 108 BANK COLLECTIONS. [Ch. 5 

iich V. National State Bank,^" where the court said, 
as to the liability of collecting banks for the defaults 
of correspondents : "They do not undertake themselves 
to collect the bills, but to intrust them to other banks 
at the place payment is to be made. The holder of the 
paper, having full notice of the course of business, must 
be held to assent thereto. He therefore authorizes the 
bank with whom he deals to do the work of collection 
through another bank." 

§ 108. Kansas. 

The position of the Kansas courts is parallel to that 
of the Pennsylvania courts. On the strength of an 
, erroneous interpretation of the case of Bank of Lins- 
borg V. Ober,"^ Kansas has heretofore been enumerated 
as one of the states in which it is held broadly that 
the initial collecting bank is not liable for the defaults 
of its selected correspondent. But, though its tend- 
ency is in that direction, an examination of that case 
will show that the question of the liability of the initial 
bank was not before the court, for the opinion states: 
"Whether the First National Bank of Selina [the ini- 
tial bank] or John McPhail [an incompetent notary 
employed by the correspondent bank] is liable or not 
are questions not necessary to be determined in this 
case, as the case is now presented to this court. The 
only question necessary to be determined by this court 
is whether the Bank of Linsborg [correspondent bank] 
is liable or not." The court then expressly bases its 

90 56 Iowa, 434, 9 N. W. 328, distinguishing Hoover v. Wise, 91 
U. S. 308. 
0131 Kan. 599, 3 Pac. 324. 

(168) 



■Ch. S] EMPLOYMENT OP AGENTS, ETC. § 109 

decision that such correspondent is liable directly to 
the owner of the paper on a specific finding of the 
court below, and its own finding that the note was de- 
livered to the initial bank "with the understanding that 
the note would be forwarded by such bank to the Bank 
of Linsborg for collection." Such findings, however, 
were based on evidence of general custom, and of a 
special course of dealing between the owner and the 
banks involved. 

A recent case decided by the Kansas court of ap- 
peals places this interpretation on the case just con- 
sidered, and itself holds that a bank actually under- 
taking to "collect" paper assumes the same liability 
as an attorney at law does under the same circum- 
stances; and undertakes to actually "collect," and not 
merely to remit for collection to another responsible 
bank.^2 This decision, the court states, is in harmony 
with that of Bank of Linsborg v. Ober, for each holds 
that "the agent of the owner is liable to the owner for 
acts of subagents selected by the said agent upon his 
own responsibility." 

§ 109. Nebraska. 

The rule in Nebraska is that, where a bank receives 
for collection a note or bill payable at a distant point, 
with the understanding that such collection is an ac- 
commodation only, or that it shall receive no compensa- 
tion therefor beyond the customary exchange, and it 
transmits such paper to a reputable and suitable cor- 
respondent at the place of payment, with proper in- 

s2 First Nat. Bank of Girard v. Craig, 3 Kan. App. 166, 42 Pao. 
830. 

(169) 



§ 111 BANK COLLECTIONS. [Ch. 5 

structions for the collection and remittance of the pro- 
ceeds, it will not be liable for the defaults of its cor- 
respondent.^^ In such case, the holder will be held to 
have assented to the employment in his behalf of such 
agents as are usually selected by banks in the course 
of business in making collections through correspond- 
ents, and the correspondent so selected will, in the ab- 
sence of negligence by the intermediate agents and 
servants of the transmitting bank, become the agent of 
the holder only.^* 

§ 110. Missouri. 

In the first Missouri case directly involving the point 
in issue, the court decides to follow what it considers 
the weight of the authorities, and holds that, "where the 
bank with which the bill or draft is placed or deposited 
for collection uses due diligence and transmits the pa- 
per to a proper correspondent for collection, with prop- 
er instructions for the collection of the same, its re- 
sponsibility is at an end, unless by some after act it 
makes itself responsible.""^ 

i 111. Kentucky. 

The court of appeals of Kentucky also adopts the doc- 
trine that, where paper payable at a distance is depos- 
es First Nat. Bank of Pawnee City v. Sprague, 34 Neb. 318, 51 N.^ 
W. 846. 

84 First Nat. Bank of Pawnee City v. Sprague, 34 Neb. 318, 51 
N. W. 846. 

95 Daly V. Butchers' & Drovers' Bank of St. Louis, 56 Mo. 94. 
To same effect is American Exchange Nat. Bank of Lincoln v.. 
Metropolitan Nat. Bank of Kansas City, 71 Mo. App. 451. 

(170) 



Ch. 5] EMPLOYMENT OP AGENTS, ETC. | 112 

ited in a bank for collection, the owner "must know the 
bank cannot send one of its officers or agents to such 
point to make the collection. He is presumed to know 
the method employed by banks in maldng such collec- 
tions. He knows that tlie bank must select some other 
bank or agency to aid in accomplishing the undertak- 
ing imposed on it. He has made the bank his agent 
for that purpose. He has employed the bank to do, 
through its method of making collection, that which 
would cost him much time and money to do himself. 
When he so engages the bank, and makes it his agent 
to make the collection, he does so with the implied 
understanding that the bank will follow the customary 
method in making such collections, which necessitates 
the selection of agents or correspondents at other points 
to carry out the undertaking, and the bank can only 
be held responsible for the exercise of due care and 
diligence in making such selection.''^'' 

§ 112. Tennessee. 

The supreme court of Tennessee, in the first case that 
arose in that state involving this question, reviewed 
briefly the conflicting authorities, and adopted, as the 
more just and equitable rule, the doctrine that a bank 
receiving for collection paper payable at a distance per- 
forms its full duty by transmitting the paper in due 
season to a suitable and reputable bank or other agent 
at the place of payment, and that in such case it is 
manifest that a subagent must be employed, and there- 
fore the owner impliedly consents to the employment 

98 Farmers' Bank & Trust Co. v. Newland, 97 Ky. 464, 31 S. W. 38. 

(lYl) 



§ 113 BANK COLLECTIONS. [Oh. S 

of such subagent.^'^ The same court again affirms the 
same doctrine in Banlc v. Cummings,^* where tlae court 
reiterates that the correspondent or agent at the place 
of payment is the agent of the owner of the paper, and 
not of tlie transmitting banlt, and tliat the liability of 
the latter is limited to its own negligence. 

The same doctrine is again announced and prior cases 
followed in the recent case of Givan v. Bank of Alex- 
andria.^^ In view of this uniformity of decision, there 
can be no doubt as to the position of the courts of Ten- 
nessee on this disputed question. 

§ 113. Alabama. 

The question whether one delivering paper to a bank 
for collection at a remote place impliedly authorizes the 
bank to appoint a subagent at that place has not yet 
been judicially determined in Alabama; but the su- 
preme court of that state has decided that, even if it 
be admitted that such is the rule in that state, the rule 
does not apply where a draft sent by the initial bank 
to a bank at the place of payment was payable "on ar- 
rival of car" of merchandise, to the order of the cashier 
of the initial bank, and was indorsed by it for collec- 
tion on its own account, and the sale of the merchan- 
dise was rescinded for good cause by the drawee of 
the draft (the purchaser of the goods) after he had paid 
the amount of the draft to the correspondent bank, and 
before remittance of the amount to the initial bank; 

07 Bank of Louisville v. First Nat. Bank of Knoxville, 8 Baxt. 
(Tenn.) 101, 35 Am. Rep. 691. 

98 89 Tenn. 609, 618. 

08 (Tenn. Ch., 1898) 52 S. W. 923. 

(172) 



Oh. 5] EMPLOYMENT OF AGENTS, ETC. §115 

since, in such case, the rescission related back to the 
time of the sale, and by relation "the plaintiff [drawee] 
was deemed owner of the money at the moment it was 
paid. It was paid in mistake of fact, and its receipt 
was possessed of the same attributes as the receipt of 
money equitably belonging to the plaintiff under any 
other circumstances."^"" 

§ 114. Mississippi. 

The supreme court of Mississippi, in Third National 
Bank v. Yicksburg Bank,^°^ determines that its prior 
decisions as to the liability of a collecting bank for the 
default of a notary ^°^ control, and that, consequently, 
a bank receiving paper for collection is not liable for 
the defaults of correspondent banks, if it has used due 
care in their selection. To this decision, however. Chief 
Justice Campbell dissents strongly, both on principle, 
and because he considers that the prior Mississippi cases 
are not authority on the point in issue. 

§ 115. Louisiana. 

The supreme court of Louisiana adopts the rule that 
the power to appoint a subagent "is implied whenever 
the principal knows that the mandatary will necessarily 
be obliged to act by a substitute. The plaintiffs knew 
that the bank could not go personally to Natchez [place 
of payment], nor send its cashier there, because his ab- 
sence would have been extremely inconvenient to them, 

100 Eufaula Grocery Co. v. Missouri Nat. Bank, 118 Ala. 408, 24 
So. 389. 

101 61 Miss. 112. 

102 See ante, § 81. 

(173) 



§ 116 BANK COLLECTIONS. | Ch. 5 

and his traveling expenses burthensome to plaintiffs; 
so that they could not expect that the defendants would 
resort to any other than the ordinary mode of collec- 
tion, to wit, the agency of a bank at the place of pay- 
ment."^"^ The court also states that it was not the 
duty of the bank to decline the handling of the paper, 
nor to notify plaintiffs that they forwarded it to a bank 
at the place of payment at plaintiffs' risk. But the 
same court holds the collecting bank liable for failure 
to select a "prudent and reliable subagent," and so holds 
a bank receiving lottery tickets as pledgee and for col- 
lection liable for overcharges made by its correspondent 
by way of commissions for collecting.^"* 

§ 116. Conclusions from the decisions. 

As pointed, out in discussing the analogous question 
of the liability of the bank for the acts or defaults of a 
notarj^ employed by it, the conflict of authorities arises 
primarily from a difference of opinion as to the exact 
relation between the collecting bank and its customer. 
The bailment theory of the relation, applied there as 
well as elsewhere in this work, when applied her^ makes 
the bank liable for the acts or defaults of its selected 
correspondents. It is believed, also, that a proper ap- 
plication of the doctrines of agency results in holding 
tlie bank liable for such acts and defaults. It is only 
by a careful avoidance of the rules of agency forbidding 
the delegation of power in respect to an undertaking 

103 Hum V. Union Bank, 4 Rob. (La.) 109. 

104 Maslch V. Citizens' Bank, 34 La. Ann. 1207. See, also, ante, 
§ 77. 

(174) 



Ch. S] EMPLOYMENT OP AGENTS, ETC. § Hg 

involving confidential services/"'^ and the rules making 
hn agent personallj' liable for the acts of any subagents 
appointed by him,'"" and by the unwarranted injec- 
tion into the relation of an implied agreement on the 
part of the depositor in the case of paper payable at a 
distance, that the bank niaj^ employ entire strangers to 
him, whose acts be cannot control, as his agents, and 
by the adoption of the legal quibble that a bank receiv- 
ing paper for collection does not really undertake to 
^'collect," but merely undertakes to find some other suit- 
able person or bank to do the collecting, that the theory 
of the nonliability of the initial collecting bank for the 
defaults of its correspondents has been evolved. It is 
difficult to see why, if the agency theory is adopted, the 
collecting bank should be made an exception to some 
of the cardinal rules of agency. 

Some of the courts holding the nonliability theory 
seem to be influenced by the smallness of the considera- 
tion received by the initial bank; but this is a matter 
which is certainly within its power to remedy. 

Each side claims that its position is supported by 
considerations affecting the stability of banking and 
general commercial business, and the general welfare 
of the business world; but it is believed that a policy 

105 Mechem, Agency, § 185. But see the same work, section 
195, subd. 3, where the author intimates that a collecting bank may 
toe authorized by custom and usage to appoint a subagent for the 
owner in case of paper payable at a distance, and thus delegate its 
power to collect. Story, Agency (9th Ed.) §§ 14-16, 29, 34, 108. 
The same author, in section 514, treats the question of the liability 
of the collecting bank, but merely gives the conflicting authorities, 
and does not decide which is the better rule. 

1"'! Mechem, Agency, § 197; Story, Agency (9th Ed.) §§ 217a, 231a. 

(175) 



§ 116 BANK COLLECTIONS. [Ch. 5 

which holds the initial collecting bank to a strict ac- 
countability can in no way prejudice any of such inter- 
ests. Such a policy is certainly in keeping with a care- 
ful administration of the business of banks, who hold 
themselves out to the public as mediums for the speedy 
and safe collection of paper payable in any part of the 
country. 

Mr. Daniel, in his work on Negotiable Instruments, 
takes the view that the initial bank is liable for any 
laches or negligence whereby the holder of the paper 
suffers loss, stating that "any other rule opens the door 
to carelessness in the conduct of banking business, 
which should be conducted with every safeguard to the 
customer who intrusts his interests to the keeping of 
such agents. If they are averse to dealing with distant 
and unknown parties, they should decline undertaking 
the collection or handling of the paper, and, if they as- 
sume it, they should do so for a sufficient compensation, 
and be held responsible."^"'^ 

Then, too, the remedy over against the correspondent 
bank, which the law allows to the initial bank,^"* affords 
the latter bank ample protection in most cases, and 
takes away all appearance of harshness from the rule 
holding the initial bank liable. 

As the result, therefore, of an impartial considera- 
tion of all the authorities and the reasoning on which 
they are based, we have no hesitation in adopting the 
rule holding the initial bank liable for the defaults of 

107 Daniel, Neg. Inst. (3d Ed.) § 342. 

Mr. Morse, in his -work on Banks and Banking (3d Ed. §§ 275, 
276) takes the opposite view. 

108 See post, § 120. 

(176) 



Ch. 5] EMPLOYMENT OF AGENTS, ETC. §118 

its selected correspondents, as the one more in harmony 
with the strict legal relation of the parties, and with 
the interests of the business world. 

§ 117. Effect of special agreements. 

Any special express agreement forming part of the 
original contract for collection, and negativing any lia- 
bility for the defaults of correspondents, will control 
the rights and liabilities of the parties as to that mat- 
^gj,_io9 jjj fact, we have seen that this is the ruling prin- 
ciple in the Pennsylvania and Kansas cases considered' 
above, and is pretty generally recognized in all the cases 
bearing on the matter. That there is an implied agree- 
ment negativing such liability where the initial bank 
uses diligence in selecting a correspondent is, as we 
have seen, the peculiar doctrine of those cases only which 
deny liability where such diligence has been used. 

§ 118. Effect of custom. 

In some jurisdictions, it has been held that the doc- 
trine that a bank undertaking the collection of paper 
payable in another place is liable for the defaults of 
its selected agents or correspondents may be modified 
or negatived by proof of a custom and usage to the con- 
trary.^i" But in order that proof of custom among 

109 Allen V. Merchants' Bank, 22 Wend. (N. Y.) 215, 236; Power 
V. First Nat. Bank of Fort Benton, 6 Mont. 251; Exchange Nat. 
of Pittshurgh v. Third Nat. Bank of New York, 112 TJ. S. 276; 
Simpson v. Waldby, 63 Mich. 451, 30 N. W. 199, 205. 

110 Allen V. Merchants' Bank of New York, 22 Wend. (N. Y.) 
215, 236; Schumacher v. Trent, 18 Tex. Civ. App. 17, 44 S. W. 460. 
See, also, Jackson v. Union Bank, 6 Har. & J. (Md.) 146; Bank of 

(177) 



§ 119 BANK COLLECTIONS. [Ch. 5 

bankers may overthrow tlie general rule, the proof must 
show a usage so uniform and general as to raise a pre- 
sumption that it was known to all persons dealing with 
banks.^" Such a custom cannot be proved by the mere 
opinions of merchants.^ ^^ 

As to express companies, it has been held that where 
it was the custom of the receiving company to deliver 
demands for collection at places beyond its line to a 
connecting express company, with which it had no gen- 
eral business arrangements or agreements except that, 
in case of collections, the connecting company reported 
to the general agent of the receiving company, and fol- 
lowed his directions, such custom is evidence of an 
agreement by the receiving company to treat a note re- 
ceived for collection according to its established cus- 
tom, though it does not, as a matter of law, impose on 
the receiving company any obligation with regard to the 
collection of the note after its delivery to the connecting 
company'.^ ^^ 

§ 119. Effect of insolvency of correspondent. 

In those cases which assert the liability of the initial 
bank for the defaults of its correspondent, the insol- 
vency of the correspondent bank after having made the 
collection does not relieve the initial bank from liabil- 

Linsborg v. Ober, 31 Kan. 599, 3 Pac. 324; Fabens v. Mercantile 
Bank, 23 Pick. (Mass.) 330. 

111 Schumacher v. Trent, 18 Tex. Civ. App. 17, 44 S. W. 460. 

112 Allen V. Merchants' Bank of New York, 22 Wend. (N. Y.) 215. 
ii3Knapp V. Umted States & Canada Exp. Co., 55 N. H. 348. 

(178) 



Ch. 5] EMPLOYMENT OF AGENTS, ETC. S 120 

ity.^^* Indeed, in many of those cases the insolvency 
of the correspondent was the default complained of.^^^ 

§ 120. Liability of correspondent bank to initial bank. 

It is a necessary corollary to the rule holding the ini- 
tial bank liable for the default of its correspondent that 
it have a remedy over against such correspondent."^ 
The correspondent bank is therefore liable to the trans- 
mitting bank for the negligence of an agent of the cor- 
respondent bank, in failing to properly charge the draw- 
er and indorsers.^^'^ It is also liable to the initial bank 
for failing to notify it of important facts affecting the 
collection, from want of which knowledge the initial 
bank paid the paper, and sustained loss.^^^ 

1" Saint Nicholas Bank v. State Nat. Bank, 128 N. Y. 26; Reeves 
V. State Bank, 8 Ohio St. 465; Simpson v. Waldby, 63 Mich. 439, 
30 N. W. 199; Williamsport Gas. Go. v. Pinkerton, 95 Pa. St. 62; 
First Nat. Bank of Omaha v. First Nat. Bank of Moline, 55 Neb. 
303, 75 N. W. 843, citing Story, Agency (9th Ed.) p. 274, § 231a, 
and Taber v. Perrot, 2 Gall. 565, Fed. Cas. No. 13,721. 

115 See cases cited in notes 49 to 73, supra. 

116 Commercial Bank v. Red River Valley Nat. Bank, 8 N. D. 382, 
79 N. W. 859; Commercial Bank of Pennsylvania v. Union Bank 
of New York, 11 N. Y. 203, affirming 19 Barb. 391; Ayrault v. 
Pacific Bank, 47 N. Y. 570; Montgomery County Bank v. Albany 
City Bank, 7 N. Y. 459; Mound City Paint & Color Co. v. Com- 
mercial Nat. Bank, 4 Utah, 353, 9 Pac. 709; Simpson v. Waldby, 
63 Mich. 439, 30 N. W. 199; Streissguth v. National German- Ameri- 
can Bank, 43 Minn. 50, 44 N. W. 797; Exchange Nat. Bank of 
Pittsburgh v. Third Nat. Bank of New York, 112 U. S. 276, 5 Sup. 
Ct. 141; Titus v. Mechanics' Nat. Bank, 35 N. J. Law, 588. 

117 Commercial Bank of Pennsylvania v. Union Bank of New 
York, 11 N. Y. 203, affirming 19 Barb. 391; Commercial Bank v. 
Red River Valley Nat. Bank, 8 N. D. 382, 79 N. W. 859. 

lis Merchants' & Manufacturers' Bank v. Stafford Nat. Bank, 44 
Conn. 564, Fed. Cas. No. 9,438. 

(179) 



§ 120 BANK COLLECTIONS. [(Jh. 5 

The initial collecting bank may recover from its cor- 
respondent the amount of paper sent for collection with 
explicit instructions to protect and return it if not paid 
at maturity, where the cashier of the defendant bank 
by fraud and collusion with the obligor on the paper 
had allowed it to accumulate, unpaid, without protest 
or notice, and without entering the items on the books 
of the bank, or informing the directors of its posses- 
sion; the initial bank having had no knowledge of the 
facts constituting the fraud, and having paid to other 
banks the amount of the paper.^^^ 

The negligence of the correspondent, and its conse- 
quent liability to the initial bank, may be waived or re- 
leased by acts which would discharge the initial bank 
from liability. But where the drawee was insolvent, 
and the drawer, after receiving notice of dishonor from 
the initial collecting bank, paid the amount of the draft 
to that bank in ignorance of the fact that a correspond- 
ent bank had been guilty of negligence in failing to col- 
lect the draft, such payment, having been made under 
a mistake entitling the drawer to a return of the money, 
in no wise discharged or suspended the liability of the 
correspondent bank to the initial bank," and the latter 
bank may recover from the former for the use of the 
drawer, though the draft had not been returned to the 
defendant.^^" 

110 National Pahquioque Bank v. First Nat. Bank of Bethel, 36 
Conn. 325. 

120 Merchants' Bank of Baltimore v. Bank of Commerce, 24 Md. 
12, 52, citing Merryman v. State, 5 Har. & J. (Md.) 423, and Whit- 
ing V. Independent Mutual Ins. Co., 15 Md. 298. 

(180) 



Ch. 6] COLLECTION AND REMITTANCE. 



CHAPTER VI. 

COMPLETION OP COLLECTION AND REMITTANCE OP 
PROCEEDS. 

§ 121. Collection complete on receipt of money and entry of ab- 
solute credit— Change of bank's status from bailee to 
debtor. 

122. Collection not complete on mere credit in advance of col- 

lection. 

123. Exceptions from estoppel or particular course of deal- 
ing. 

124. Completion of collection by application of deposits to 

payment — Effect of failure to so apply deposits. 

125. Withdrawal of deposit. 

126. Effect of payment to correspondent bank. 

127. How remittance made — Check, draft, or certificate of col- 

lecting bank. 

128. Payment by mistake, and recovery of payments made by 

mistake. 

129. Mistake as to solvency of obligor, or sufficiency of 

customer's deposits. 

130. Voluntary payment by bank cannot be recovered back. 

The collection is complete on receipt of the money and the 
entry of absolute credit therefor. It is not complete, however, 
on a mere credit in advance of actual collection; for such a 
credit may be canceled on nonpayment of the paper. The 
entry of a credit on receipt of a draft or check in payment, 
instead of money, does not amount to a collection until the 
check or draft is itself paid. 

Exceptions to the above rules may arise from an estoppel 
of the bank by acts inconsistent with them, or from a particu- 
lar course of dealing. 

The collection may also become complete if the bank, under 

(181) 



§ 121 BANK COLLECTIONS. [Ch. 6 

definite instructions to that effect, applies and appropriates 
the deposits of the obligor to payment of the paper. 

In those jurisdictions where the correspondent bank is held 
to be an agent of the initial bank only, a payment to the cor- 
respondent is a payment to the initial bank, which is there- 
after chargeable for the amount as for a completed collec- 
tion. 

The bank need not remit the actual money collected unless 
so expressly instructed. The custom of remitting by check 
or draft is so universal that the courts take judicial notice 
of it. But the collection is not complete in such case until the 
paper sent in payment is itself paid. 

Where a payment has been made by mistake, it may be re- 
covered back if the owner will lose none of his rights thereby. 
But a mistake as to the solvency of the obligor, or the suffi- 
ciency of a customer's account, is not such a mistake as will 
authorize a recovery of payments made. 

A voluntary payment by the collecting bank cannot be re- 
recovered. 

§ 121. Collection complete on receipt of money and entry of 
absolute credit — Change of bank's status from bailee 
to debtor. 

We have seen that the title to paper deposited for 
collection in the ordinary course of business remains in 
the depositor.^ This is because the bank is a mere 
bailee, or, as some authorities designate it, an agent, for 
the depositor. But when the paper has been converted 
into cash, and this cash has been placed at the absolute 
disposal of the depositor, though still in the possession 
of the bank, a new relation arises. 

The rule governing this new state of affairs is that 
the relation of bailor and bailee, or of principal and 

iSee ante, §§ 11-19. 
(183) 



Ch. 6] COLLECTION AND REMITTANCE. § 121 

agent, ceases, and that of creditor and debtor begins, 
when the money is collected and placed in the general 
fund of the bank, and absolute credit given therefor.^ 
But the relation of debtor and creditor does not arise 
until after the collection has been actually made, and 
the bank is in actual possession of the proceeds'.^ 

In some cases, as we shall see later,* the bank is held 
to the liabilities of a trustee from the mere facts of collec- 
tion and credit, but the better authorities are nearly uni- 
form in denying the right to charge the bank with any 

2 In re Bank of Madison, 5 Biss. 515, Fed. Cas. No. 890; Bank of 
Commerce V. Russell, 2 Dill. 215, Fed. Cas. No. 884; Balbach v. 
Frelinghuysen, 15 Fed. 675; First Nat. Bank of Richmond v. Wil- 
mington & W. R. Co., 23 C. C. A. 200, 77 Fed. 401; Armstrong v. 
Commercial Bank of Pennsylvania, 148 TJ. S. 50, 13 Sup. Ct. 533; 
Beal V. National Exchange Bank of Dallas, 55 Fed. 894, affirming 
50 Fed. 355; Marine Bank v. Fulton Bank, 2 Wall. (U. S.) 252, 
17 L. Ed. 785; First Nat. Bank of Richmond v. Davis, 114 N. C. 
343, 19 S. B. 280; Commercial & Farmers' Nat. Bank of Baltimore 
V. Davis, 115 N. C. 226, 20 S. E. 370; National Bank of Commerce 
of Seattle v. Johnson, 6 N. D. 180, 69 N. W. 49; Freeman's Nat. 
■Bank v. National Tube- Works Co., 151 Mass. 413, 24 N. E. 779; 
Manufacturers' Nat. Bank v. Continental Bank, 148 Mass. 553, 20 
N. E. 193; Pacific Bank v. Mitchell, 9 Mete. (Mass.) 297; Hallam 
V. Tillinghast, 19 Wash. 20, 52 Pac. 329; Union Nat. Bank v. Citi- 
zens' Bank of Union City, 153 Ind. 44, 54 N. B. 97; Gordon v. 
Rasines, 5 Misc. Rep. 192, 25 N. Y. Supp. 767. 

The bank may become estopped to deny receipt of the money 
by wrongfully returning a draft given in payment by the drawee 
bank. Gregg v. Bi-Metallic Bank, 14 Colo. App. 251, 59 Pac. 852. 

3 Beal V. City of Somerville, 5 U. S. App. 14, 50 Fed. 649: BvansviUe 
Bank v. German-American Bank, 155 U. S. 556, 562, citing Sweeny 
V. Easter, 1 Wall. (U. S.) 166; White v. National Bank, 102 U. S. 
658; Commercial Bank of Pennsylvania v. Arp-stTO-i". iiH tj. S 50; 
Beal V. National Exchange Bank of Dallas, 55 Fed. 894, affirming 
50 Fed. 355. 

* See post, § 146 et seq. 

(183) 



§ 122 BANK COLLECTIONS. [Oh. 6 

greater responsibility in such case than that of a sim- 
ple debtor, even though the bank became insolvent be- 
fore actual remittance.^ 

§ 122. Collection not complete on mere credit in advance of 
• collection. 

W& have also, seen that the mere entry of a credit on 
receipt of the paper is conditional upon ultimate pay- 
ment, and may be canceled and the. amount charged 
back in case of nonpayment.* It follows that a mere 
credit of the amount of the paper, in advance of collec- 
tion, cannot operate to change the relation of bailor and 
bailee, or principal and agent, to that of creditor and 
debtor; in other words, such a credit is not equivalent 
to collection or payment.'' So, the mere crediting by 

5 See post, § 146 et seq. 

See ante, § 15. 

7 Thompson v. Gloucester City Savings Inst. (N. J. Ch.) 8 Atl. 
97; Boykln v. Bank of Payetteville, 118 N. C. 566, 24 S. B. 357; 
National Bank of Commerce v. Manufacturers' & Traders' Bank, 
122 N. Y. 367, 25 N. B. 355; National Park Bank v. Seaboard Bank, 
114 N. Y. 28, 34, 20 N. E. 632, 11 Am. St. Rep. 612; National Bank 
of Commerce of Seattle v. Johnson, 6 N. D. 180, .69 N. W. 49; 
Armstrong v. National Bank of Boyertown, 90 Ky. 431, 437; Levi 
V. National Bank of Missouri, 5 Kill. 104, Fed. Cas. No. 8,289; 
Marine Bank v. Pulton Bank, 2 Wall. (U. S.) 252. 

But a bank can make itself liable to the owner as debtor for 
the amount of a note deposited with it for collection, by giving 
credit to the depositor on his bank book, and suing, in its own 
name, the maker and his surety, having thus assumed property 
in the note. WetherlU v. Bank of Pennsylvania, 1 Miles (Pa.) 399. 

The crediting in this case was made, by mistake, and was after- 
wards erased and canceled by the bank, but the owner, before 
suit by the bank on the note, had notified it that he would hold 
it responsible for the amount of the note. 

(184) 



Ch. 6] COLLECTION AND REMITTANCE. | 132 

a collecting bank of the amount of a bill, at maturity, 
to the account of the holder, is not such a payment as 
will discharge an accommodation acceptor thereon ; but 
the bank succeeds to the rights of the holder, and may 
recover against the acceptor.^ 

Paper taken in payment cannot take the place of 
•cash, under the above rules, and, where a bank, holding 
notes for collection, accepted other notes of the maker 
payable to the bank, and credited the payee's account 
therewith, and surrendered the old notes, but no cash 
passed, and the account of the maker of the notes was 
not charged with their amount as money borrowed, there 
was no payment of the collection, and the owner of the 
■surrendered notes may recover against the maker there- 
•of.« 

As the authority of the collecting bank to credit the 
owner with the proceeds is revoked by its failure and 
suspension, a credit entered after insolvency by an as- 
signee or receiver cannot avail to change the relation 
of the parties to that of debtor and creditor. i" For the 
same reason a transfer of a credit, from the drawer to 
the payee, of the amount of a check, made by the as- 
signees of the bank, in advance of collection, is not a 
payment of the check." 

8 Pacific Bank v. Mitchell, 9 Mete. (Mass.) 297, 302. 

Scott V. Gilkey, 153 111. 168, 39 N. B. 265. 

Authority of bank to receive paper in payment, see ante, §§ 46-49. 

10 First Nat. Bank of Circleville v. Bank of Monroe, 33 Fed. 408; 
First Nat. Bank of Crown Point v. First Nat. Bank of Richmond, 76 
Ind. 561, 40 Am. Rep. 261. See, also, Jockusch v. Towsey, 51 Tex. 
129, and ante, § 32. 

11 Exchange Bank of Wheeling v. Sutton Bank, 78 Md. 577, 28 
A.tl. 563, 23 L. R. A. 173. 

(185) 



§ 123 BANK COLLECTIONS. ^Ch. 6 

It has also been held that where a bank, having cheeks 
drawn on a banking partnership, sent them to the firm 
for collection, but the firm was dissolved by the death of 
a partner before the checks were received, the surviving 
partner has no authority to charge the checks to the 
drawers, and credit the amount to the bank on the firm's 
books.^^ Nor can the bank so change the relation of the 
parties by giving a credit in advance of collection, on the 
day of its failure, and while it is, as it were, /u articulo 
mortis; ^^ especially if such credit is entered before ma- 
turity of the paper.i* 

§ 123. Exceptions from estoppel or particular course of 

dealing. 

The bank may, however, become estopped by its own 
remissness to deny that it became a debtor for the 
amount, though it did not receive it in cash. Thus, a 
collecting bank which received from its correspondent, 
in payment, a check on a local bank, and gave credit 
to its customer therefor, and failed to cancel or revoke- 
such credit for twenty-one days after knowledge of the 
dishonor of the check, is precluded from denying that 
it became a debtor to the customer for the amount ; the 
court stating that the action of the defendant "was con- 

12 First Nat. Bank of Alexandria v. Payne & Co.'s Assignees, 8&- 
Va. 890, 9 S. E. 153. The bank in such case can reclaim the money 
in full from the assignee for creditors of the firm. Id. 

13 Levi V. National Bank of Missouri, 5 Dill. 104, Fed. Cas. No. 
8,289. 

"Jones V. Kilbreth, 49 Ohio St. 401, 31 N. E. 346; Levi v. Na- 
tional Bank of Missouri, 5 Dill. 104, Fed. Cas. No. 8,289; In re 
Armstrong, 33 Fed. 405; Gordon v. Rasines, 5 Misc. Rep. 192, 25- 
N. Y. Supp. 767. 
(186) 



Ch. 6] COLLECTION AND REMITTANCE. § 123 

elusive evidence of an intention to change its status 
from that of a mere collecting agent to that of a debt- 
or." ^^ So, also, where a credit given the initial bank 
by its correspondent is canceled because of mistake in 
supposing the collection to have been made, and the 
amount is charged back to such bank, which notifies 
its correspondent that the latter will be held responsi- 
ble, and continues for over two years uncanceled, a cred- 
it given to the owner, during which time the accounts 
between the banks were several times rendered and set- 
tled, there was an "account stated," precluding the ini- 
tial bank from denying its liability to the owner.^'' 

The bank maj also become estopped to deny that it 
is a debtor for the amount, though it never received the 
money, by wrongfully returning to the drawee bank a 
draft sent in payment of a check, pursuant to a request 
of the drawer of the check made after the draft had 
been mailed.^^ 

The general rule may also be modified by a general 
course of dealing between banks. For example, a bank 
which received for collection a check drawn on another 
bank, which for fifteen years had been its correspond- 
ent under an agreement that all collections made by it 
for the former bank should be credited to such bank in 
a weekly settlement, sent the check to the drawee bank 
and received the customary credit. The drawee at the 

isKirkham v. Bank of America, 165 N. Y. 132, 58 N. B. 753, 
affirming 26 App. Div. 110, 49 N. Y. Supp. 767. See, also, Bufaula 
Grocery Co. v. Missouri Nat. Bank, 118 Ala. 408, 24 So. 389: 

isHarley v. Eleventh Ward Bank, 7 Daly, 476, affirmed In 76 
N. Y. 618. 

17 Gregg V. Bi-Metallic Bank, 14 Colo. App. 251, 59 Pac. 852. 

(187) 



§ 123 BANK COLLECTIONS. [Ch. 6 

same time, charged the account of the drawer with the 
amount of the check, and suspended payment next day. 
It was held that, under the arrangement between the 
banks, the drawee had the right to substitute itself as 
debtor in the place of the drawer, and that the collect- 
ing bank must be regarded as having accepted the re- 
sponsibility of the drawee, upon its credit in the collec- 
tion account, as payment of the check.^* 

A recent Tennessee case also exemplifies the excep- 
tion to the rule. The correspondent bank, on present- 
ment of a draft to the drawee, was directed by him to 
present it at a certain bank, and did so, such bank hav- 
ing sufficient funds of the drawee to pay it. The lat- 
ter bank took up and canceled the draft, and delivered 
it up to the drawee, and took credit therefor on a set- 
tlement with him, but paid no money out on account 
of the draft. In a settlement between such bank and 
the correspondent bank, the draft was embraced and 
credit given therefor to the correspondent bank, which 
in turn credited the initial sending bank, but remitted 
no money to it. Both of the banks other than the ini- 
tial bank became insolvent; the correspondent bank 
having at the time a large credit in its favor on the 
books of the other insolvent bank. It was held, in view 
of the general custom of banks to make settlements by 
mutual credits and debits, that, as between the holder 
and the draAvee, the draft was collected and paid.^^ 

isBriggs V. Central Nat. Bank, 89 N. Y. 182, 42 Am. Rep. 285, 
affirming 10 Daly, 179, 61 How. Pr. 250, and distinguishing Indig 
V. National City Bank, 80 N. Y. 100. 

19 Howard & Co. v. Walker, 92 Tenn. 452. 
(188) 



Oh. 6] COLLECTION AND REMITTANCE. § 124 

§ 124. Completion of collection by application of deposits to 
payment — Effect of failure to so apply deposits. 

Where a bank, holding for collection a bill against 
one of its customers, receives from him a deposit suf- 
ficient to pay it, with special instructions to apply such 
deposit to its payment, but becomes insolvent without 
having done so, and after having merely given the 
drawee a general credit on its books for the sum depos- 
ited, the bill is not paid as between the holder and the 
drawee.^" The same rule applies where the bank cus- 
tomarily uses a customer's deposits to pay claims against 
him received for collection, so that a deposit of funds 
to meet a particular claim and others does not consti- 
tute a payment as against the creditor in case the bank 
fails before such funds are appropriated as directed.^^ 

The same principle was applied in an important Mich- 
igan case, on a somewhat different state of facts. The 
maker of a note payable at a bank deposited with an- 
other bank, before maturity, money with which to take 
it up, and directed it to so apply such money, but the 
latter bank failed after receiving the note from the hold- 
er, indorsed to its order for collection, without having 
remitted to the holder or canceled the note or the credit 
given the depositor at the time of the deposit. It was 
held that, as between the holder and the maker, the note 
was not paid.^^ But it has been held recently in Ar- 
kansas that, where the maker of a note sent for col- 

20 Moore V. Meyer, 57 Ala. 20. 

Authority of collecting bank to apply customer's deposits to pay- 
ment of paper, see ante, § 42. 

21 Moore v. Meyer, 57 Ala. 20. 

22 Sutherland v. First Nat. Bank of Ypsilanti, 31 Mich. 230. 

(189) 



§ 125 BANK COLLECTIONS. [Oh. 6 

lection to a bank where lie had a deposit sufficient to 
cover it, directed the bank to apply it on the note, and 
the bank thereupon charged his account with the amount 
thereof, and credited the sending bank, there was a pay- 
ment of the note, precluding a recovery by the sending 
bank against the maker, the collecting bank having 
failed without indorsing any payment on the note or 
paying the sending bank.^^ 

Another interesting case in point was recently decided 
by the Kansas court of appeals. In that case the hold- 
ers of school district orders caused them to be sent for 
collection to a private bank, composed solely of the treas- 
urer of the school district, who, at the time, had in his 
possession money of the school district sufficient to pay 
them, and marked them "Paid," credited himself as 
treasurer with the amount, and delivered the canceled 
orders to the clerk of the school district. He also en- 
tered payment of the orders on the collection registry 
of the bank, but a draft given by him as the bank for 
the amount of the orders was protested for nonpayment. 
It was held that, as between the holders of the orders 
and the school district, the orders had been paid.^* 

§ 125. Withdrawal of deposit. 

Where the deposit is on an express condition, as where 
a note is sent for collection to a bank in which the mak- 
er has funds, and the maker instructs the bank to pay 
it out of such funds on condition that no interest or 
exchange be charged, the maker can Avithdraw his funds 

23 Daniel v. St. Louis Nat. Bank, 67 Ark. 223, 54 S. W. 214. 
2* Globe Furniture Co. v. School District No. 22, 6 Kan. App. 
.889, 50 Pac. 978. 

(11.0) 



Ch. 6] COLLECTION AND REMITTANCE. | '^21 

at any time before an actual aijpropriation of the funds 
is made ^^ to payment of the note. Such appropriation 
did not take place where the senders of the collection 
were informed of the condition, and gave no assent there- 
to.28 

§ 126. Effect of payment to correspondent bank. 

The doctrine that the collecting bank is a bailee, and 
that its correspondents are its own agents, necessarily 
results in holding that payment of the collection to the 
correspondent bank, and an entry of the proceeds to 
the credit of the initial bank on the books, the initial 
bank being at the time apparently solvent, and the cor- 
respondent having no notice of its insolvency, is a pay- 
ment to the initial bank which, instaiiter, becomes debt- 
or to the owner for the amount collected.^''^ So, also, 
where a note is payable at the bank to which it is sent 
for collection, and such bank has no express authority 
to employ another bank as subagent, but nevertheless 
employs one, a payment to the latter is not a payment 
to the owner.^* 

S 127. How remittance made — Check, draft, or certificate of 
collecting bank. 

As the relation of bailor and bailee or of principal 
and agent ceases when the monej- is actually collected, 
and that of debtor and creditor begins, the collecting 

25 Bellows V. Norton, 12 Heisk. (Tenn.) 319. 

26 Bellows V. Norton, 12 Heisk. (Tenn.) 319. 
2T Reeves v. State Bank, 8 Ohio St. 465, 482. 

28 Sherman v. Port Huron Engine & Thresher Co., 8 S. D. 343, 
66 N. W. 1077. 

(191) 



§ 128 BANK COLLECTIONS. [Ch. 6 

bank is not bound to remit the identical money collected, 
nor is it the duty of the payor to see that it does so.^" 
If the bank had been expressly instructed to hold the 
proceeds as a special deposit, it would, of course, have 
to keep the identical cash received intact. But, in the 
absence of any such instructions, the custom of remit- 
ting by check or draft or certificate for the proceeds 
of a collection, instead of remitting the exact money 
collected, is so general and universal that the courts 
take judicial notice of it.^" 

However, it has been held that Avhere the collecting 
bank gives its own draft for the proceeds of a collection 
actually received, the transaction does not amount to 
a remittance until that draft is paid.*^ This is in ac- 
cord with the general rule of commercial paper that, 
unless it is so specifically agreed, a check or draft for 
the amount thereof is not a payment of a negotiable in- 
strument.^^ 

§ 128. Payment by mistake, and recovery of payments made 
by mistake. 

A bank which has paid the amount of a draft to the 

29 First Nat. Bank of Richmond v. Wilmington & W. R. Co., 23 
C. C. A. 200, 77 Fed. 401; Bowman v. First Nat. Bank of Spokane, 
9 Wash. 614, 38 Pac. 211; Hallam v. Tillinghast, 19 Wash. 20, 52 
Pac. 329. 

30 Bowman v. First Nat. Bank of Spokane, 9 Wash. 614, 38 Pac. 
211; First Nat. Bank of Richmond v. Wilmington & W. R. Co., 23 
C. C. A. 200, 77 Fed. 401. See, also, Hallam v. Tillinghast, 19 
Wash. 20, 52 Pac. 329. 

31 People V. Bank of Dansville, 39 Hun (N. Y.) 187. 
Authority of bank to receive paper of debtor in payment, see 

ante, §§ 46-49. 

32 Burkhalter v. Second Nat. Bank of Erie, 42 N. Y. 538, 40 How. 
(]92) 



Ch. 6] COLLECTION AND REMITTANCE. ^ 128 

payee before maturity, in the mistaken belief that the 
draft had been accepted and paid, may recover it back, 
if such payee has lost none of his rights against the 
drawer by reason of the mistake.^^ So, too, where the 
correspondent bank has paid over the amount to the 
transmitting bank, and the latter to the holder, in the 
mistaken belief that the paper had been paid, the cor- 
respondent may recover the amount from the holder.^* 

A Kentucky case applying the same rule holds that 
where the initial bank has paid the amount of a draft 
to the owner, and he has given a receipt to the debtor, 
on mistaken information from a correspondent that the 
draft had been paid, sucli correspondent being account- 
able to the initial bank, may recover the amount of the 
draft from such owner, the receipt being merely prima 
facie evidence of payment, and hence subject to contra- 
diction.?'' 

Where a bank receives and holds money paid to it 
under a mistake of fact by the drawee of a draft sent 
to it by the owner for collection, the drawee, by givinc, 
notice to that effect before the agent bank had turned 
over the money to its principal, may elect to hold either 

Pr. 324; Hamill v. German Nat. Bank, 13 Colo. 203; Western Brass 
Mfg. Co. V. Maverick, 4 Tex. Civ. App. 535, 23 S. W. 728. 

33 De Nayer v. State Nat. Bank, 8 Neb. 104. It was no defense 
that the maker had called at the bank before maturity of the 
draft, and expressed surprise at its payment before maturity, and 
stated to the officers of the bank that he would protect the draft, 
and that, if it was not paid, he had money with which to pay. 
it. Id. 

34 Bank of Orleans v. Smith, 3 Hill (N. Y.) 560. 

35 First Nat. Bank of Chattanooga v. Behan, 91 Ky. 560, 16 S. 
W. 368, citing Mayer v. City of New York, 63 N. Y. 457. 

(193) 



§ 129- BANK COLLECTIONS. [Ch 6 

responsible as for money had and received.^® But an 
election once made to hold one of them is binding, and 
constitutes a renunciation of all right to recourse against 
the other."'^ 

The effect of the payment of forged or altered paper, 
and the right to recover back payments made on such 
paper, will be considered in a later chapter.^® 

§ 129. Mistake as to solvency of obligor, or sufficiency 

of customer's deposits. 

As a bank is required to know the state of a custom- 
er's account, and pays his checks at its own risk, so far 
as third persons are concerned, it is no defense to an 
action against a bank on a draft given by it for the 
amount of a customer's check that the draft was given 
in the mistaken belief that the customer had sufi&cient 
funds in the bank to pay the check.^® But it has been 
held in NeAV York that the fact that a note payable at 
a bank, after having been delivered to it by the holder 
for collection, and charged to the account of the maker, 
which was not good for the amount, was paid by the 
bank to the holder, and stamped Avith a cancellation 
mark, does not show that the note was paid and extin- 
guished as between the bank and the maker, but the 

36Bufaula Grocery Co. v. Missouri Nat. Bank, 118 Ala. 408, 24 
So. 389, and cases and authorities cited. 

3T Bufaula Grocery Co. v. Missouri Nat. Banli, 118 Ala. 408, 24 
So. 389; Cook v. Cook, 28 Ala. 660; Fowler v. Bowery Sav. Bank, 
113 N. Y. 450, 21 N. B. 172, 10 Am. St. Rep. 479. 

38 Chapter 8. 

39 First Nat. Bank of Denver v. Devenish, 15 Colo. 229, 25 Pac. 
177, 22 Am. St. Rep. 394. 

(104) 



Ch. 6] COLLECTION AND REMITTANCE. § 129 

bank may sue him on it as a subsisting security.*" On 
examination of this case, however, it will be seen that, 
under the rules and practice of the bank, the cancella- 
tion mark meant merely that the paper had been charged 
to the account of the maker. 

A bank's certification of a note payable at the bank, 
the maker having an account there, makes the note the 
primary absolute obligation of the bank, regardless of 
the sufficiency of the maker's account to meet the note, 
and the bank, as against the holder, cannot rescind its 
contract on the ground of mistake as to that fact.*^ 

The general rule that, where money has been paid by 
one joint agent to another through mistake, and has 
not been forwarded by the latter to the principal, or 
he has not done some act before notice of the mistake, 
on the assuniption that the payment was good, by which 
he would suffer some damage if it should be held not 
good, the agent so paying may recover back the money so 
paid,*^ does not apply to relieve a collecting bank which 
had taken the worthless check of the drawee in pay- 
ment of a draft sent it for collection, and surrendered 
the draft to him, and remitted cash for the amount to 
another intermediate collecting bank, since by so do- 
ing without authority it had made the check its own, 

10 Watervliet Bank v. Wllte, 1 Denio (N. Y.) 608. To same effect 
is Manufacturers' Nat. Bank. v. Thompson, 129 Mass. 438. 

11 Riverside Bank v. First Nat. Bank of Shenandoah, 20 C. C. A. 
181, 74 Fed. 276. The certification in this case was made at the 
instance of another bank, acting as collecting agent for the holder 
of the paper. 

42Herrick v. GaUagher, 60 Barb. (N. Y.) 566; Cox v. Prentice, 
S Maule & S. 348; BuIIer v. Harrison, 1 Cowp. 568; Mechem, Agency, 
J§ 560-562. 

(195) 



§ 129 BANK COLLECTIONS. [Ch. 6 

and mere mistake as to the solvency of the drawee in 
such case is not such a mistake of fact as is contemplated 
by such general rule.^^ 

As to the right of a bank to rescind its contract evi- 
denced by its draft or check given in payment, after 
the same has been actually placed in the mails, on a 
subsequent discovery of the insolvency of the obligor, 
or of the insufficiency of his deposits to meet the claim, 
there is a conflict of authority. The better rule is found 
in a Wisconsin decision that, where a bank to which a 
draft was sent for collection advanced the funds to pay 
the same at the request of the drawee, and mailed its 
own draft to the payee with a letter stating that it was 
in payment of the draft sent for collection, and the 
bank thereafter, on discovering the insolvency of the 
drawee, withdrew the letter from the mails, and de- 
stroyed its draft, it was liable to the drawer of the first 
draft for the amount thereof, with interest.** Posting 
the draft in such case was a delivery thereof to the 
payee, and after the posting, the bank had no right to 
take the draft from the mails.*^ 

*3 National Bank of Commerce v. American Exchange Bank, 151 
Mo. 320, 52 S. W. 265 ; Boylston Nat. Bank v. Richardson, 101 Mass. 
287; Canterbury v. Bank of Sparta, 91 Wis. 53, 64 N. W. 311. 

a Canterbury v. Bank of Sparta, 91 Wis. 53, 64 N. W. 311. See, 
also, Gregg v. Bi-Metallic Bank, 14 Colo. App. 251, 59 Pac. 852; 
Boylston Nat. Bank v. Richardson, 101 Mass. 287; Pratt v. Poote, 
9 N. Y. 463; Whiting v. City Bank of Rochester, 77 N. Y. 363; Eaton 
V. Ccok, 32 Vt 58. 

■45 Canterbury v. Bank of Sparta, 91 Wis. 53, 64 N. W. 311; 
Gregg V. Bi-Metallic Bank, 14 Colo. App. 251, 59 Pac. 852; Buell 
V. Chapin, 99 Mass. 594; Kirkman v. Bank of America, 2 Cold. 
(Tenn.) 397; Mitchell v. Byrne, 6 Rich. Law (S. C.) 171; 1 Daniel, 
Neg. Inst. § 67. 
(196) 



Ch. 6] COLLECTION AND REMITTANCE. ^ 130 

But the supreme court of California has come to a 
different conclusion on a similar state of facts. The 
payee delivered a note to a bank for collection, and the 
maker, who was a customer of the hank, on present- 
ment, directed the hank to charge the amount to his 
account, but at the time was indebted to the bank, and 
had no money on deposit. The hank, supposing his 
credit to be good, charged his account, and canceled the 
note, and wrote out a check, which it deposited in the 
post oflflce; but, on discovering on the same day the 
insolvency of the maker of the note, indorsed on the 
note that it had been erroneously canceled, and with- 
drew its check from the mails. It was held that there 
was no payment of the note, the bank having a right 
to rescind its contract on the ground of mistake.*® 

^ 130. Voluntary payment by bank cannot be recovered back. 

A payment by the bank, not made by mistake, but 
voluntarily, on the credit of the maker, cannot be re- 
covered back.*^ 

46 Steinhart v. National Bank of D. 0. Mills & Co., 94 Cal. 362, 
29 Pac. 717, 28 Am. St. Rep. 132. 

47 Whiting V. City Bank of Rochester, 77 N. Y. 363. Unsworn 
declarations of the assistant cashier, who was not the person 
alleged to have made the mistake, are not sufficient evidence that 
a payment by the hank was made by mistake, and not volun- 
tarily. Id. 

(197) 



BANK COLLECTIONS. [Ch. 7 



CHAPTER VII. 

RIGHTS AND LIABILITIES AS TO PROCEEDS. 

(A) In General. 

§ 131. Who entitled to proceeds in general. 

132. Bona fide holders of paper. 

133. Rights of creditors of owner. 

134. Proceeds of paper belonging to firm or partner. 

135. Proceeds of judgment on joint claims of bank and de- 

positor. 

136. Liability of correspondent bank to owner. 

137. For conversion. 

138. Liability of correspondent to initial bank. 

139. Title and rights as between initial and correspondent 

banks in general. 

140. Estoppel of initial bank to deny ownership. 

141. Effect of rules and usages of clearing houses. 

142. Lien of correspondent bank on proceeds for debt of initial 

bank. 

143. When correspondent a bona fide purchaser of paper. 

144. Notice of real ownership of paper. 

145. Proceeds of paper originally indorsed in blank. 

(B) Enforcing Preference or Establishing Trust. 

§ 146. In general. 

147. Fraudulent conversion as creating preference or trust. 

148. Remittance made by draft or check — Drawer or drawee 

bank insolvent. 

149. Refusal to pay customer's' check does not give preference. 

150. Tracing and following proceeds into insolvent estate of 

collecting bank. 

151. Proceeds never in possession of bank. 

152. Amount of note. against customer charged to his ac- 
count before insolvency of bank. 



(198) 



(Jll 7] RIGHTS AND LIABILITIES. 

153. Proceeds disposed o£ before insolvency. 

154. Proceeds collected by assignee or receiver. 

155. Bank as owner of paper and proceeds. 

156. Preference limited to assets realized at time of failure of 

bank. 

157. Waiver of preference or trust. 

(A) In General. 

The collecting bank is liable to the owner for the proceeds 
when collected by itself or its agents. If special directions 
have been given by the owner to pay to some other person, the 
bank must govern its actions accordingly. 

Bona fide holders of the paper are entitled to the proceeds 
thereof from the collecting bank. The general rules of com- 
mercial paper govern in determining who are bona fide hold- 
ers. 

The rights of creditors of the owner of the paper, after a 
completed collection, depend on the ownership of the proceeds 
as between the bank and the debtor. In Georgia, the proceeds 
of paper originally indorsed "for deposit and credit" are sub- 
ject to garnishment as the property of the indorser. If the 
paper was unindorsed, the proceeds in the hands of the bank 
are not subject to trustee process at the instance of a creditor 
of the payee. 

The proceeds of paper belonging to a member of a firm can- 
not be used without his consent to pay partnership obligations ; 
but the proceeds of firm paper may be so used if such use is 
justified by a course of dealing. 

The correspondent bank may, in certain cases, become re- 
sponsible to the owner for the proceeds, but is not liable for 
conversion, in the absence of a demand. Mere insolvency of 
such bank does not amount to a conversion. 

As between banks which are members of a clearing house 
association, the rules and customs of such association as to 
the disposition of the proceeds of collections are binding; but, 
as against the original owner, the effect of such rules and 

(199) 



§ 131 BANK COLLECTIONS. [Gh. 1 

customs may be negatived by the form of the indorsement on 
the paper, or other notice of his ownership. 

The right of the correspondent bank to a lien on the pro- 
ceeds for an indebtedness of the sending bank depends on the 
nature of the dealings between the banks, the character of the 
paper and its indorsements, and the knowledge of the creditor 
bank of the real ownership of the paper. In some jurisdictions, 
the correspondent bank may become a holder for value, as 
against the original owner, by reason of the antecedent debt 
of the initial bank; but it cannot become a bona fide holder 
if it has notice of the real ownership of the paper. An indorse- 
ment to the initial bank "for collection'* is such notice. "Where 
the paper was originally indorsed in blank, the lien of the 
correspondent bank for a debt of the initial bank is usually 
-.sustained. 

§ 131. Who entitled to proceeds in general. 

It may be stated as a general rule that the collecting 
bank is liable to the owner for the payment of the money 
when collected by itself,^ and, in those jurisdictions 

1 Hyde v. First Nat. Bank of Lacon, 7 Biss. 156, Fed. Cas. No. 
6,970; First Nat. Bank of Leadville v. Leppel, 9 Colo. 594, 13 Pac. 
776. 

But a bank holding a customer's demand note has a lien on 
the proceeds of drafts delivered to It for collection after the giv- 
ing of the note, though collected after the filing of a petition in 
bankruptcy, and can apply such proceeds on the note. In re 
Farnsworth, 5 Biss. 223, Fed. Cas. No. 4,673. As to general lien 
of bank on the paper, see ante, § 23. 

In an action against a bank for the proceeds of a collection, 
the books of the bank showing original entries are admissible to 
establish a balance due the bank. McLennan v. Bank of Califor- 
nia, 87 Cal. 569, 25 Pac. 760, and cases cited. 

The maker of a note who has paid the amount thereof to the 
bank at which it was payable, and to which it had been indorsed 
by the payee for collection, and obtained a surrender of the note, 
cannot maintain an action against the bank for misappropria- 
(200) 



Ch. 7] RIGHTS AND LIABILITIES. § 131 

holding that persons or banks employed by the initial 
bank are its agents, it is liable to such owner for the 
proceeds when collected by such agents.^ 

So, too, in those jurisdictions allowing the bank to 
sue on the paper in its own name, the amount recov- 
ered is, of course, held by the bank for the use and ben- 
efit of the owner.^ Sometimes, however, the bank is 
ordered by the owner to pay the proceeds to a designated 
person, or has special notice or instructions relative to 
payment of the proceeds, and in any of such cases its 
actions should be governed accordingly.* Thus-, an or- 
der by the customer to the collecting bank to "deliver" 
the proceeds of drafts, if they had been collected and 
credited to the customer, to a designated third person,^ 
is equivalent to an order to "pay" to such person the 
amount of the drafts if then collected, so that an accept- 

tion of the fund, since he was, by such payment, absolutely dis- 
charged from liability. Smith v. Essex County Bank, 22 Barb. 
(N. Y.) 627. The bank in this case was agent of the payee only. 
Id. 

A written promise to account for the proceeds of notes left for 
collection with the promisor is not negotiable, as the amount to 
be paid is not a sum certain. Piske v. Witt, 22 Pick. (Mass.) 83. 

That an action on the case will not lie against the collecting 
bank for failure to turn over the proceeds of the collection, see 
Tinkham v. Heyworth, 31 111. 519. 

2 Hyde v. First Nat. Bank of Lacon, 7 Biss. • 156, Fed. Cas. No. 
6,970; Reeves v. State Bank, 8 Ohio St. 482; Sherman v. Port 
Huron Engine & Thresher Co., 8 S. D. 343, 66 N. W. 1077. See, 
.also, cases cited under sections 86-98, ante. 

3 Bank of Louisiana v. Stansbury, 4 La. 530 ; Padfleld v. Green, 
85 111. 529; Cottle v. Cole, 20 Iowa, 485; Merchants' Bank of Bal- 
timore V. Bank of Commerce, 24 Md. 12, 52. 

i Commercial State Bank- v. Rowland, 31 Neb. 483, 48 N. W. 
149. 

(201) 



§ 131 BANK COLLECTIONS. [Ch. T 

ance of the order by the bank, and a payment of the- 
proceeds to the person so designated, operated as a pay- 
ment of the debt of the bank to the customer.^ 

A bank will also be protected in paying the proceeds 
of checks, payable to a corporation, to one who had been 
accustomed to collect moneys and pay bills for the cor- 
poration at the bank, with the knowledge and consent 
of the officers of the corporation, and who had indorsed 
the name of the corporation on the checks; the corpo- 
ration being, in such case, estopped to deny the author- 
ity of such person to receive the money.'' But, where- 
a note for the price of timber was left at a bank for col- 
lection, and the bank was notified that the note was the- 
property of the vendor of the timber, though made pay- 
able to one who had been employed to cut the timber, 
and was also indemnified against the claim of such per- 
son, the bank is liable to such vendor for the full amount 
of the collection, after having paid it over to the em- 
ploye, notwithstanding the notice.''^ 

sWeedsport Bank v. Park Bank, 2 Rob. (N. Y.) 418. 

6 Craig Medicine Co. v. Mercliants' Bank, 59 Hun, 561, 14 N. T.. 
Supp. 16. 

See, also. Central Nat. Bank of Baltimore v. Connecticut Mutual' 
Life Ins. Co., 104 U. S. 54, where it was held that a bank in 
which the general agent of a corporation had deposited its funds, 
as its general agent, but had deposited his own funds in the same- 
account, and drew checks on it for his private use, was charged 
with notice of the equitable rights of the company, and could 
not retain a lien for a private debt of the agent as against the- 
beneficial ownership of the company. Citing Duncan v. Jaudon, 
15 Wall. (U. S.) 165; Shaw v. Spencer, 100 Mass. 382, and other 
cases. To same effect, see Importers' & Traders' Nat. Bank v. 
Peters, 123 N. Y. 272. See, also, Englar v. Offutt, 70 Md. 78, 16 Atl. 
497. 

' First Nat. Bank of Wellsborough v. Bache, 71 Pa. St. 213, cit- 

(202) 



Ch. 7] RIGHTS AND LIABILITIES. § 132 

A recent Iowa case determines the right to the pro- 
ceeds where collection was made after the bank had 
redelivered the paper to the depositor. In that case 
credit was given by a bank for the amount of a draft 
indorsed to it and delivered for collection, 'and the draft 
was forwarded to the drawee bank, where it was pro- 
tested. On its return, it was redelivered to the depos- 
itor, and the amount charged back to him. Thereafter 
he again sent the draft to the drawee, and it was paid 
to such drawee by the drawer. It was held that the 
proceeds belonged to the depositor, so that he could re- 
cover damages for the wrongful garnishment thereof by 
one having no valid claim against such depositor.^ 

§ 132. Bona fide holders of paper. 

Bona fide holders of the paper occupy the same favor- 
able position with respect to the proceeds of a collection 
that they occupy with respect to other transactions af- 
fecting the paper.* So, where a banker, with whom 
drafts indorsed in blank were left for collection, wrong- 
fully sold them, the purchaser, having no knowledge 
that he was not the real owner, is a bona fide holder, 
and may retain the proceeds as against the real owner.^** 
The latter could easily have restricted the indorsement 
in the first place, and thus protected himself. 

As against the collecting bank, an indorsee of a draft 

ing Farmers' & Mecliamcs' Nat. Bank v. King, 57 Pa. St. 202. 
The court in the first case above cited treated the fund as a 
trust fund for the benefit of the vendor. 

8 Pickering v. Cameron, 103 Iowa, 186, 72 N. W. 447. 

» Correspondent bank as bona fide holder, see post, §§ 143, 155. 

10 Coors V. German Nat. Bank, 14 Colo. 202, 23 Pac. 328. 

(203) 



§ 133 BANK COLLECTIONS. [Ch. 7 

in payment of an antecedent debt is a bona fide pur- 
chaser.^^ But a purchaser of one of several overdue 
and dishonored mortgage notes, which was fraudulently- 
transferred by an agent of the collecting bank after pro- 
test, is not a bona fide holder, and is not entitled to 
share as such in the proceeds of a subsequent sale under 
the mortgage.^ ^ 

§ 133. Rights of creditors of owner. 

We have seen, in treating of the special property 
rights of the bank as bailee for collection prior to re- 
ceipt of the proceeds, that the paper itself is not attach- 
able before collection, at the instance of creditors of 
the depositor." The right of creditors of the depositor 
to attach or garnish the proceeds in the hands of the 
bank depends primarily on the question of the owner- 
ship of the proceeds, as between the depositor and the 
bank.i* 

The supreme court of Georgia holds that the payee 
of a bill who indorses it "for deposit and credit" is not 
only the owner of the bill, but retains ownership of the 
proceeds after collection, so that it is subject to gar- 
nishment as his property in the hands of the collecting 

11 Citizens' Nat. Bank of Lawrenceburg v. Third Nat. Bank of 
Greensburg, 19 Ind. App. 69, 49 N. B. 171; Straughan v. Pair- 
child, 80 Ind. 598. 

Rights of bank taking paper for antecedent debt of sending 
bank, see post, § 143. 

12 Foley V. Smith, 6 Wall. (tJ. S.) 492. 

13 See ante, § 22. 

"Pickering v. Cameron, 103 Iowa, 186, 72 N. W. 447. As to 
title to paper, see ante, §§ 11-23. 

(204) 



Ch. 7] RIGHTS AND LIABILITIES. § I33 

bank.^^ In a later case, however, the same court liolds 
that if a regular customer of a bank indorses paper to 
the bank "for deposit and credit" to his account, and 
receives credit against which lie is allowed to draw, 
the proceeds of the paper in the hands of a correspond- 
ent of the initial bank are not subject to. garnishment 
as the property of such indorser, since they are the 
property of the initial bank.^*^ 

In Massachusetts it has been held that a bank to which 
a note without any indorsements Avas sent for collec- 
tion is not chargeable in trustee process (garnishment) 
at the instance of a creditor of the payee, where it shows 
that, on the day the writ was served, it had the note in 
its possession, and collected it, and passed the proceeds 
to the credit of the sending bank on its open account, 
in accordance with directions received with the note; 
that it had never received notice from defendant (the 
payee) that the proceeds belonged to him; and that 
the sending bank, on notification of the service of the 
writ, had replied that it would "take care of it.''^^ 

A bank which has received a note for collection can- 
not defend an action by the depositor for the proceeds 
of the note, on the ground that the note was originally 
executed to defraud creditors of a third person, and 
that a garnishment proceeding was pending, seeking to 
subject the note to payment of a debt of such third per- 
is Freeman v. Exchange Bank of Macon, 87 Ga. 45. 
ic Fourth Nat. Bank of Cincinnati v. Mayer, 89 Ga. 108, distin- 
guishing Freeman v. Exchange Bank of Macon, 87 Ga. 45, and 
Central Railroad v. First Nat. Bank of Lynchhurg, 73 Ga. 383. 

IT Richards v. Stephenson, 99 Mass. 311. See, also, Hancock v. 
Colyer, 99 Mass. 187. 

(205) 



§ 134 BANK COLLECTIONS. [Ch. 7 

son, if the bank itself was not one of the creditors; it 
appearing that the bank was in no way liable in the 
garnishment proceeding.^* 

i 134. Proceeds of paper belonging to firm or partner. 

In the absence of express instructions, a banker has 
no authority to apply the proceeds of a collection to 
discharge a note, not payable at the bank, executed by 
a firm of which the owner of the collection was a mem- 
ber, for the claims are in different rights.^® 

Even if the paper was entirely unindorsed, a bank 
with actual notice prior to collection, of a transfer of 
the claim to plaintiff by the payee, cannot use the pro- 
ceeds to pay to a third person a note, not payable at the 
bank, executed by a firm of which plaintiff's transferror 
was a member.^" But a custom of a particular firm to 
deposit its customers' notes in a bank for collection, 
and to allow the bank to treat the paper as collateral 
for the debts of the firm to the bank, and credit the 
proceeds of collections on the firm's account, justifies 
the bank in retaining the proceeds of notes so deposited 
and collected, and applying the amount on a balance 
due on the firm's account.^^ 

IS First Nat. Bank of Leadville v. Leppel, 9 Colo. 594, 13 Pac. 
776. 

19 Commercial State Bank v. Rowland, 31 Neb. 483, 48 N. W. 
149, citing 1 Morse, Banks & Banking! § 326. 

20 Commercial State Bank v. Rowland, 31 Neb. 483, 48 N. W. 
149. 

21 Studebaker Bros. Mfg. Co. v. First Nat. Bank of Sulphur 
Springs (Tex. Civ. App.) 42 S. W. 573, citing Bank of Metropolis 
V. New England Bank, 1 How. (U. S.) 234, 6 How. 211, and Central 
Nat. Bank of Baltimore v. Connecticut Mutual Life Ins. Co., 104 
U. S. 54, 77. 

(206) 



Ch. 7] RIGHTS AND LIABILITIES. "§ 136 

§ 135. Proceeds of judgment on joint claims of bank and 
depositor. 

A peculiar case arose in California, where, it appears, 
it is permissible for the collecting bank to join in one 
suit the claim of its customer and. a claim of its own 
against the same debtor. A bank agreed to collect notes 
against one who was also indebted to the bank, and agreed 
to pay the proceeds over to the owner of the notes, after 
deducting the cost of collection. The bank joined its 
own claim Avith the claim on the notes in one suit, and 
recovered judgment for the aggregate of both claims, 
and bought in the debtor's property at a sale on execu- 
' tion under the judgment, there being no other bidders, 
for the benefit of itself and the owners of the notes. The 
proceeds of the sale were not sufficient to pay both 
-claims. It was held that the bank and the owners of 
the notes were entitled to share in the proceeds of the 
■sale in the proportion in which their respective claims 
had paid the purchase price at the sale.^^ 

S 136. Liability of correspondent bank to owner. 

Where there are no mutual accounts between the in- 
itial and correspondent banks, but remittances of col- 
lections are made at stated periods, the owner may re- 
cover the proceeds of a collection directly from the cor- 
respondent prior to the time of an actual remittance by 
the correspondent, or of a credit by the initial bank of 

22 Marks v. Bodie Bank (Cal.) 8 Pac. 807. The title having 
ibeen taken by the bank, was held in trust for the owners of the 
:notes to the extent of their interest. Id. 

(207) 



§ 137 ' BANK COLLECTIONS. [Ch. 7 

the proceeds to the account of the owner.^^ A some- 
what different statement of the rule is that the corre- 
spondent, not having remitted the proceeds collected to 
the initial bank, and not having a right of set-off, is 
liable directly to the owner of the paper if the indorse- 
ment and instructions plainly show that he still has 
title to the paper.^* And under this rule the owner 
majr recover the proceeds from the correspondent bank, 
though it has credited the amount to an intermediate 
collecting bank.^^ 

Where there are mutual accounts and dealings be- 
tween the banks, whereby the correspondent bank takes 
the paper for collection as the property of the initial 
bank, without notice that it is not the real owner, the 
rules are different, as we shall see later.^'^ 

§ 137. For conversion. 

The correspondent bank is not, however, liable to the 
OA^'ner for conversion of a draft received in payment of 
the collection, and lawfully coming into its possession, 
in the absence of a demand by him for the draft or its 
proceeds.-^ And where the proceeds of the collections 

23 National Exchange Bank of Dallas v. Beal, 50 Fed. 355, af- 
firmed in 55 Fed. 894. 

2* First Nat. Bank of Circleville v. Bank of Monroe, 33 Fed. 
408; Boykin v. Bank of Payetteville, 118 N. C. 566, 24 S. E. 357; 
Commercial Nat. Bank of Cincinnati v. Hamilton Nat. Bank of 
Ft. Wayne, 42 Fed. 880. 

25 Branch v. United States Nat. Bank of Omaha, 50 Neb. 470, 
70 N. W. 34; Boykin v. Bank of Fayetteville, 118 N. C. 566, 24 S. 
E. 357. 

26 See post, §§ 142-145. 

27 Castle V. Corn Exchange Bank, 148 N. Y. 122, 42 N. E. 518. 
An order from the drawer of the paper collected, to hold the 

(208) 



Cll, 7] RIGHTS AND LIABILITIES.- § 138 

made on commission, and under an agreement for daily 
remittances, were mingled with the other funds of the 
collecting bank at a time when its cashier had no knowl- 
edge of its insolvency, the collecting bank is not charge- 
able with conversion of the funds, though it was in fact 
insolvent when it received them, and failed soon after.^^ 

§ 138. Liability of correspondent to initial bank. 

As a logical deduction from the rules that the initial 
bank is liable for the defaults of its correspondents, that 
it must account to the owner for the paper or its pro- 
ceeds, and that it has a resultant remedy over against 
the correspondent, it may be stated that the correspond- 
ent bank is liable to the initial bank for the proceeds 
of the collection when realized.^^ It has been held, how- 
ever, in one of the jurisdictions which upholds the con- 
trary doctrine, viz., that the correspondent bank is the 
agent of the owner of the paper, and that the initial 
bank is not liable for its defaults, that on refusal or 
failure of the correspondent bank to pay over the money 
to the initial collecting bank, the latter cannot sue the 
former, but the owner of the paper is the real party in 
interest, and must bring the suit.^" 

draft, is not a demand on behalf of the owner, no agency being 
shown. Id. 

That trover will not lie by the owner where the paper was in- 
dorsed in blank, and the correspondent advanced money on it to 
initial bank, see post, § 145. 

^8 First Nat. Bank of Richmond v. Davis, 114 N. C. 343, 19 S. E. 
280, 41 Am. St. Rep. 795. 

29 See ante, §§ 85-98. 

aoAbrams v. Cureton, 74 N. C. 523; Boykin v. Bank of Payette- 
ville, 118 N. C. 566, 24 S. B. 357. 

(209) 



§ 139 BANK COLLECTIONS. [Ch. 7 

I 

§ 139. Title and rights as between initial and correspondent 
banks in general. 

It is a settled rule that title to the proceeds of com- 
mercial paper received for collection by a bank, and 
forwarded to its correspondent in due course of busi- 
ness, without any express agreement in reference there- 
to, does not pass to the correspondent, even if it remit- 
ted on general account, in anticipation of collection.*^ 

Credit given "subject to payment" on receipt of pa- 
per for collection, under a contract with the sending 
bank permitting unpaid items to be charged back, is 
merely provisional, and does not create a debt or change 
the ownership of the paper or proceeds.^ ^ 

It is also a settled rule of law that where the banks 
have no mutu£^l arrangement that remittances shall be 
credited on previous accounts, and no advances are made 
on the faith of any particular collection, no lien exists 
in favor of the initial bank which will prevent the owner 
from recovering the amount of the collection, though 
such bank has credited the amount to its correspondent 
in payment of its indebtedness.*^ 

siDickerson v. Wason, 47 N. Y. 439; Scott v. Ocean Bank, 23 
N. Y. 289; National Park Bank v. Seaboard Bank, 114 N. Y. 28, 34, 
20 N. B. 632, 11 Am. St. Rep. 612. See, also, ante, §§ 15, 16, and 
McBride v. Farmers' Bank of Salem, 26 N. Y. 450. 

Certain correspondence between banks held to constitute a 
contract for collection of items forwarded by one to the other, 
and not a contract to purchase. Richardson v. Louisville Bank- 
ing Co., 36 C. C. A. 307, 94 Fed. 442. 

32 Manufacturers' Nat. Bank v. Continental Bank, 148 Mass. 553, 
20 N. E. 193, 12 Am. St. Rep. 598, 2 L. R. A. 699; Levi v. National 
Bank of Missouri, 5 Dill. 104, Fed. Cas. No. 8,289. See, also, ante, 
§ 15. 

33Millikin v. Shapleigh, 36 Mo. 596, 88 Am. Dec. 171; Wilson 

(210) 



Oh. 7] RIGHTS AND LIABILITIES. § 140 

§ 140. Estoppel of initial bank to deny ownership. 

The initial bank may become estopped to deny its 
ownership of the paper and its proceeds. Thus, where 
a draft for the price of goods, payable to the order of 
the cashier of a bank at the place of the drawer's resi- 
dence, "on arrival of car" containing the goods, was 
indorsed by such bank for collection for its own ac- 
count, and was sent by it to a bank at the place of resi- 
dence of the drawee, and the drawee paid the amount 
to the latter bank under a mistake of fact entitling 
him to a recovery back, and without knowledge that 
the draft was not the property of the sending bank, 
such sending bank, though it never received the money, 
is estopped, as against the drawee, from denyihg actual 
ownership of the draft, and setting up a mere agency to 
collect.^* 

This decision was not based on the ground that the 
admission of evidence to show agency would be allow- 
ing the contradiction of a written instrument by parol, 
but solely on the ground that the drawee had acquired 
his rights without knowledge of any agency, and that 
a principal will not be allowed to take advantage of 

V. Smith, 3 How. (U. S.) 763; Jones v. Milliken, 41 Pa. St. 252; 
McBride v. Farmers' Bank of Salem, 26 N. Y. 450, aflarming 25 
Barb. 657; Hackett v. Reynolds, ll- Pa. St. 328, 6 Atl. 689; First 
Nat; Bank of Clarion v. Gregg, 79 Pa. St. 384; Stark v. United 
States Nat. Bank, 41 Hun (N. Y.) 506; Dod v. Fourth Nat. Bank 
of New York, 59 Barb. (N. Y.) 265; Llndauer v. Fourth Nat. 
Bank, 55 Barb. (N. Y.) 75; Hutchinson v. Manhattan Co., 9 Misc. 
Rep. 343, 29 N. Y. Supp. 1103; Commercial Bank of Clyde v. Ma- 
rine Bank, 3 Keyes (N. Y.) 337. 

3i Eufaula Grocery Co. v, Missouri Nat. Bank, 118 Ala. 408, 24 
So. 389. See, also, Cook v. Cook, 28 Ala. 660. 

(211) 



§ 141 BANK COLLECTIONS. [Ch. 7 

his own wrong where, with his authority, the agent re- 
ceived the money, though he never turned it over to the 
principal. 

§ 141. Effect of rules and usages of clearing houses. 

We have seen that the rules and usages of clearing 
house associations are not binding on the customers of 
the various banks forming the association.^^ They are, 
however, binding on the banks that are members of the 
association.^^ Yet it may be that the form of the in- 
dorsement on the paper negatives the right of a bank 
to rely on the usages of the clearing house association. 
Thus, where a draft on a bank which was a member of 
a clearing house association was expressly indorsed 
by the owners "for collection" to another bank, which 
was also a member of the same association, the indorse- 
ment will prevent the association from appropriating 
the proceeds to payment of the indebtedness of the in- 
dorsee bank to the association, under an agreement by 
which the exchanges of such bank could be retained by 
the association until the payment of any balance against 
such bank;^'' consequently, a payment to the associa- 
tion by the drawee bank is no 'defense to an action by 
the owners against such bank for the proceeds.^^ 

That the rules of the clearing house cannot affect the 
ownership of the proceeds after there has been an actual 
absolute payment through the clearing house is exem- 

35 See ante, § 10. 

38 Overman v. Hoboken City Bank, 30 N. J. Law, 61, 31 N. J. 
Law, 563; O'Brien v. Grant, 146 N. Y. 173; Atlas Nat. Bank v. 
National Exchange Bank, 176 Mass. 300, 57 N. E. 605. 

37 Crane v. Fourth Street Nat. Bank, 173 Pa. St. 566. 

38 Crane v. Fourth Street Nat. Bank, 173 Pa. St. 566. 

(212) 



Cll. 7] RIGHTS AND LIABILITIES. § 142 

plified in a recent case holding that, where a bank sent 
to another bank its cashier's check on a third bank for 
the amount of collections made, such third bank having 
at the time sufficient funds of the drawer to pay the 
check, and the check was paid in due course through 
the clearing house, there was a complete appropriation 
of the fund to the payee bank, and, the drawer being 
insolvent, a subsequent temporary restoration of the 
money by the payee bank to the drawee bank on demand 
made by it under the rules of the clearing house of which 
both were members, requiring repayment on demand, 
and adjustment of the merits of the claim afterwards, 
did not affect its ownership of the fund.^^ 

§ 142. Lien of correspondent bank on proceeds for debt of 
initial bank. 

In the course of the transmission of paper from bank 
to bank for collection, it often happens that it comes in- 
to the hands of a bank to which the sending bank is in- 
debted on general account. The right of the creditor 
bank in Such case to retain the proceeds to liquidate 
such debt depends on the nature of the dealings between 
the banks, the character of the paper and its indorse- 
ments, and the knowledge of the creditor bank of the real 
ownership of the paper. 

Where there has been a course of mutual dealings be- 
tween two banks, under which paper sent by one to the 
other was treated as the property of the sending bank, 

39 National Union Bank v. Barle, 93 Fed. 330. The drawee bank 
in this case having paid over the money to a receiver of the 
drawer bank, the payee bank was held entitled to recover directly 
from him, as a trustee for its benefit. Id. 

(213) 



§ 142 BANK COLLECTIONS. [Ch. 7 

and credits and debits entered accordingly, and bal- 
ances remitted at stated intervals, or when called for, 
the receiving bank has a lien as against the owner, on 
paper sent to it for collection, for an unpaid balance of 
account against the sending bank, if the receiving bank 
had no notice, from the nature of the indorsements, or 
otherwise, that title was not in the sending bank.^° The 
correspondent bank is bound to know that it has no lien 
on paper sent by the initial bank for collection, for a 
balance against such bank, unless the initial bank was 
owner of the paper.*^ 

If the correspondent bank, on the faith of the ultimate 
collection of unmatured paper sent to it and in its pos- 
session for collection, allows the remitting bank to draw 
on the expected funds, and thus realize the proceeds of 
the paper, before its maturity or payment, it has a lien 
on the paper as' against the transmitting bank for the 
amount of the advances until reimbursed.*^ The rule 
is analogous to the rule allowing a lien on collaterals for 
advances made.*^ But, in the absence of previous ar- 

40 Carroll v. Exchange Bank, 30 W. Va. 518, 4 S. E. 440; Bank 
of Metropolis v. New England Bank, 1 How. (TJ. S.) 234, 6 How. 
212; Rathbone v. Sanders, 9 Ind. 217; Wilson v. Smitli, 3 How. 
(U. S.) 763. Contra, see Lawrence v. Stonlngton Bank, 6 Conn. 
521. 

The right of the correspondent to set off a debt due it from 
the initial bank cannot be adjudicated in a suit between the owner 
and the initial bank, to which the correspondent is not a party. 
National Exchange Bank of Dallas v. Beal, 50 Fed. 355. 

41 Van Amee v. Bank of Troy, 8 Barb. (N. Y.) 312, 321. 

*2 Williams v. Jones, 77 Ala. 294, and cases cited. The cor- 
respondent bank may enforce the lien against an assignee for 
the creditors of the transmitting bank. Id. 

43 Williams v. Jones, 77 Ala. 294. 
(214) 



Ch. 7] RIGHTS AND LIABILITIES. § 142 

rangeinents or mutual dealings, a correspondent bank 
which has received the paper for collection only from 
the initial bank to which it has been delivered for col- 
lection cannot retain the paper as against the owner for 
an unpaid balance due from the initial bank.** 

As was said by Holmes, J., in Millikin v. Shapleigh:*^ 
"But where there is no such mutual arrangement or pre- 
vious course of dealing between the parties whereby it 
is expressly or impliedly understood that such remit- 
tances of paper are to go to the credit of the previous 
account when received, and no advance is made and no 
credit is given on the basis of the particular bill, or 
on the faith of such course of dealing or such remit- 
tances, or where the special circumstances are incon- 
sistent with the hypothesis of such mutual under- 
standing, and the one bank merely passes the pro- 
ceeds of paper remitted for collection to the credit of 
the other on a subsisting indebtedness which it happens 
at the time to have standing against the other, there is 
no such lien, and no right to retain and apply the money 
collected in that manner; but the real owner of the 
funds may maintain an action to recover the amount." 

So, a mere credit by the correspondent bank to the 
initial bank does not change the relation to that of cred- 
itor and debtor, the initial bank not being indebted to 
the correspondent bank at the time.*" And no mere 

44Millikm v. Shapleigh, 36 Mo. 596; Van Amee v. Bank of 
Troy, 8 Barb. (N. Y.) 312; Hoffman v. Miller, 9 Bosw. (N. Y.) 334, 
following Warner v. Lee, 2 Seld. (N. Y.) 144, and Scott v. Ocean 
Bank, 23 N. Y. 289. 

45 36 Mo. 596. See, also, Wilson v. Smith, 3 How. (U. S.) 763. 

46Guignon v. First Nat. Bank of Helena, 22 Mont. 140, 55 Pac. 

(215) 



§ 143 BANK COLLECTIONS. [Ch. 7 

custom among banks, whereby the collecting bank 
credits the transmitting bank instead of remitting, can 
prevail to the prejudice of the rights of the owner of the 
paper.*'^ If the correspondent bank, on making the 
collection, credits the proceeds to the sending bank after 
the latter is insolvent, and in the hands of the bank ex- 
aminer, the credit does not amount to a payment as 
against the owner of the paper, though the crediting 
bank did not know of such insolvency when the credit 
wjis made.** 

Where a bank has in good faith accepted the draft of 
a national bank one day prior to the latter's insolvency, 
the lien of the former on the proceeds of collections on 
paper belonging to the latter attaches at the date of the 
acceptance.*^ 

§ 143. When correspondent a bona fide purchaser of 

paper. 

It is the law in New York that a bank receiving notes 
for collection from another bank acquires no better title 

1051, 1097. See, also. Metropolitan Nat. Bank v. Merchants' Nat. 
Bank, 182 111. 367, 55 N. E. 360, affirming 77 111. App. 316. 

*T Armstrong v. National Bank of Boyertown, 90 Ky. 431, 438; 
First Nat. Bank of Clarion v. Gregg, 79 Pa. St. 384; Lawrence v. 
Stonington Bank, 6 Conn. 521. 

48 Evansville Bank v. German-American Bank, 155 U. S. 556, 
562, distinguishing Commercial Bank of Pennsylvania v. Arm- 
strong, 148 V. S. 50. 

49 In re Armstrong, 41 Fed. 381. 

Rev. St. XJ. S. § 5242, invalidating transfers of the commercial 
paper of a national bank after its insolvency does not prevent the 
lien from attaching in this case. Id. 

See, also, Dana v. Third Nat. Bank in Boston, 13 Allen (Mass.) 
445; Laclede Bank v. Schuler, 120 U. S. 511, 7 Sup. Ct. 644. 

(216) 



•Ch. 7] RIGHTS AND LIABILITIES. § 143 

than the remitting bank had unless it becomes a pur- 
chaser for value; and, prior to the adoption of the ne- 
gotiable instruments law, the mere existence of a bal- 
ance against the remitting bank on open account, and 
for discounts made, did not constitute the correspondent 
bank a holder for value.^° This is also the law in Mis- 
sissippi."^ It was also the law in North Carolina prior 
to the adoption of the negotiable instruments law in 
that state.^^ But the negotiable instruments law as 
adopted in New York and North Carolina provides that 
an antecedent or pre-existing debt constitutes value and 
hence changes the above rule to that extent.^^ Yet, if 
the correspondent had notice, from the form of the in- 
dorsement or otherwise, that the sending bank did not 
own the paper, it would not be a bona fide purchaser, 

50 Commercial Bank of Clyde v. Marine Bank, 3 Keyes (N. Y.) 
337; Van Amee v. Bank of Troy, 8 Barb. (N. Y.) 312; McBride 
T. Farmers' Bank of Salem, 26 N. Y. 450. The court in the case 
last cited refuses to follow the decisions of the United States su- 
preme court in Bank of Metropolis v. New England Bank, 1 How. 
(U. S.) 234, 6 How. 212, and Swift v. Tyson, 16 Pet. 1, hut follows 

■Coddington v. Bay, 20 Johns. (N. Y.) 637; Rosa v. Brotherson, 10 
Wend. (N. Y.) 86; Stalker v. McDonald, 6 Hill (N. Y.) 93, and 
Youngs V. Lee, 2 Kern. (N. Y.) 551, on the proposition that an an- 
tecedent or pre-existing debt is not a sufficient consideration to 
■establish a purchase for value. 

See, also, Clark v. Merchants' Bank, 2 Comst. (N. Y.) 380; Com- 
mercial Bank of Pennsylvania v. Union Bank of New York, 1 Kern. 
(N. Y.) 203; Warner v. Lee, 2 Seld. (N. Y.) 144; Scott v. Ocean 
Bank, 23 N. Y. 289. 

51 First Nat. Bank of Meridian v. Strauss, 66 Miss. 479, 6 So. 232. 
s2 Stevenson v. Fidelity Bank of Durham, 113 N. C. 485, 18 S. 

E. 695. 

53 Laws N. Y. 1897, c. 612, § 51; Public Laws N. C. 1899, c. 733, 
-i 25. 

(217) 



g 143 BANK COLLECTIONS. [Ch. T 

notwithstanding the above provision of the negotiable 
instruments law as to what constitutes value.®* 

So, though paper delivered for collection and sent by 
the initial bank to its correspondent carries upon it evi- 
dence by way of an indorsement that the legal title has 
passed to the correspondent, the correspondent will not 
be protected, as against the true owner of the paper, 
unless it is a bona fide holder, and took the paper with- 
out notice that it was not the property of the initial 
bank before it obtained possession.^® Where, however, 
a banker is made the payee of a draft, intended only for 
collection by him, and indorses the draft to a bank for 
collection and credit to his personal account at a time 
when he was indebted to such bank, the latter becomes 
a bona fide purchaser, and may retain the proceeds as 
against the original owner, though it was notified by 
telegraph before it received the proceeds, but after the 
draft had been paid, that the draft was not the property 
of such banker when he so delivered it for collection.®" 

5* See People's Bank of Lewisburg v. Jefferson County Sav. Bank,. 
106 Ala. 523, 17 So. 728; Stevenson v. Fidelity Bank of Durham, 113 
N. C. 485, 18 S. E. 695, and cases cited in notes to section 144, infra. 

55 Van Amee v. Bank of Troy, 8 Barb. (N. Y.) 312. See, also, 
Brandao v. Barnett, 3 Man., G. & S. 519, where the house of Lords 
held (reversing the decision of the court of exchequer chamber [6 
Man. & G. 630], which had reversed the decision of the court of 
common pleas [1 Man. & G. 908]) that where an agent rieposited 
exchequer bills in a tin box at a banker's, of which box he re- 
tained the key, and delivered them to the bankers only for the 
purpose of receiving the interest and exchanging the bills for new 
ones, wh(ch he again locked up in the box, the bank had no lien 
on the bills for a balance of the agent's personal account at the 
bank, though it had no notice of the agency, the bills not having 
been deposited with the bunk as a bank. 

soWyman v. Colorado Nat. Bank, 5 Colo. 30, 40 Am. Rep. 133.- 
(218) 



Ch. 7] RIGHTS AND LIABILITIES. | 144 

An interesting case on this point, decided by the su- 
preme court of the United States, involved the follow- 
ing facts : A Cincinnati bank transferred a note pay- 
able at its office, and a mortgage securing it, to a bank 
in New York, which discounted the note, and placed 
the proceeds to the credit of the first bank, Avhich credit 
had not been canceled at the tinie of a subsequent suit 
by the second bank to foreclose the mortgage. Specific 
directions « ere given to the second bank to notify the 
mortgagee and collect the amount due at maturity and 
to foreclose in their own name. The note was for three 
years, but the transfer was made within thirty days of 
maturity. There was no indorsement to the second bank 
on the note, but, when sent, it was accompanied by a 
formal separate instrument containing a guaranty by 
the first bank of collection and payment, — the guaranty 
to take effect if the second bank took the note and mort- 
gage. It was apparent that the transfer was made to 
fenable the second bank to sue in its own name, and es- 
cape defense available against the first bank. It was 
held that the second bank was merely a trustee for col- 
lection, and was not a bona fide purchaser.^'' 

§ 144. Notice of real ownership of paper. 

Notice to the correspondent bank, from the nature of 
the indorsements on the paper or from other sources, 
that title to the paper and its proceeds was not in the 

The court in this case applies the doctrine that, where one of two 
innocent parties must suffer by the act of a third, that one must 
suffer who by his acts made it possible for such third person to 
occasion the loss. 

57 Lanier v. Nash, 121 U. S. 404, 7 Sup. Ct. 919, 30 L. Ed. 947. 

(219) 



§ 144 BANK COLLECTIONS. [Ch. 7 

sending bank, but remained in the original depositor, 
negatives any right of the correspondent to retain the 
proceeds on a debt of the sending bank to itself.^* 

An indorsement "for collection" is notice to all par- 
ties or banks into whose hands the paper comes that it 
was forwarded for collection only, and that there was 
no intention to transfer the title to the paper or its pro- 
ceeds, and that the indorser is still the owner of the 
paper and its proceeds. Hence a correspondent bank 
receiving paper so indorsed cannot retain the proceeds 
on an indebtedness of the sending bank, to the prejudice 
of the original indorser.^^ And no agreement between 
the initial and correspondent banks, nor any method of 
bookkeeping or of charging and crediting accounts 

58 See cases cited in notes 59-63, infra. 

59 Evansville Bank v. German-American Banli, 155 U. S. 556, 562, 
15 Sup. Ct. 221; FifttL Nat. Bank v. Armstrong, 40 Fed. 46; Com- 
m^ercial Nat. Bank of Cincinnati v. Hamilton Nat. Bank of Ft. 
Wayne, 42 Fed. 880; Bank of Metropolis v. First Nat. Bank of 
Jersey City, 19 Fed. 503; Sweeny v. Easter, 1 Wall. (U. S.) 166, 173; 
Blaine v. Bourne, 11 R. I. 119; Ttird Nat. Bank of Syracuse v. 
Clark, 23 Minn. 263; Merchants' Nat. Bank of St. Paul v. Hanson, 
33 Minn. 40; National Bank of Commerce of Seattle v. Johnson, 6 
N. D. 180, 69 N. W. 49; People's Bank of Lewisburg v. Jefferson 
County Sav. Bank, 106 Ala. 524, 17 So. 728; Northwestern Nat. 
Bank of Chicago v. Bank of Commerce of Kansas City, 107 Mo. 
402, 17 S. W. 982, 15 L. R. A. 102; Mechanics* Bank v. Valley 
Packing Co., 70 Mo. 643, 4 Mo. App. 200; National Park Bank v. 
Seaboard Bank, 114 N. Y. 28, 20 N. E. 632, 11 Am. St. Rep. 612; Naser 
V. First Nat. Bank, 116 N. Y. 492, 22 N. B. 1077; Cecil Bank v. 
Farmers' Bank of Maryland, 22 Md. 148; Claflin v. Wilson, 51 
Iowa, 15, 50 N. W. 578; Hoffman v. First Nat. Bank of Jersey City) 
46 N. J. Law, 604; First Nat. Bank of Crown Point v. First Nat. 
Bank of Richmond, 76 Ind. 561; Manufacturers' Nat. Bank v. Con- 
tinental Bank, 148 Mass. 553, 20 N. E. 193; Sutherland v. First 
Nat. Bank of Ypsilanti, 31 Mich. 230; Boy kin v. Bank of Fayette- 

(220) 



Ch. 7J RIGHTS AND LIABILITIES. § 144 

among themselves, can prejudice the rights or title of 
the true owner of the paper, if he had indorsed it re- 
strictively for collection in the first instance.^" So, where 
the indorsement to the initial hank, which has become 
insolvent, was an unambiguous one for collection, the 
correspondent cannot retain the proceeds collected be- 
fore notice of insolvency for a debt due it from the initial 
bank, as against the owner, though it had notified the 
initial bank of the collection, and had given it credit on 
the books of the bank.^^ And where the paper was 
originally indorsed for collection, the correspondent 
bank is not discharged from liability to the owner, on 
the insolvency of the initial bank, by having credited 
the amount to such bank, where no cash was paid to the 
initial bank, and the credit entry could be negatived by 

ville, 118 N. C. 566, 24 S. B. 357; National Citizens' Bank of New- 
York V. Citizens' Nat. Bank, 119 N. C. 307, 25 S. E3. 971; People's 
Bank of New York v. Citizens' Nat. Bank, 119 N. C. 310, 25 S. B. 
1023. 

• 60 National Citizens' Bank of New York v. Citizens' Nat. Bank, 
119 N. C. 307, 25 S. E. 971; Boykin v. Bank of Fayetteville, 118 N. 
C. 566, 24 S. B. 357; Stevenson v. Fidelity Bank, 113 N. C. 485, 18 
S. E. 695; People's Bank of Lewisburg v. Jefferson County Sav. 
Bank, 106 Ala. 524, 17 So. 728, distinguishing Commercial Bank of 
Pennsylvania v. Armstrong, 148 U. S. 50, 13 Sup. Ct. 533; Hackett 
V. Reynolds, 114 Pa. St. 328, 6 Atl. 689; Evansville Bank v. German- 
American Bank, 155 V. S. 556, 15 Sup. Ct. 221; Commercial Nat. 
Bank of Cincinnati v. Hamilton Nat. Bank of Ft. Wayne, 42 Fed. 
880; Bank of Metropolis v. First Nat. Bank of Jersey City, 19 Fed. 
303; Blaine v. Bourne, 11 R. I. 119; Arnold v. Clark, 3 N. Y. Super. 
Ct. 491; Lawrence v. Stonington Bank, 6 Conn. 521. 

ei People's Bank of Lewisburg v. Jefferson County Sav. Bank, 106 
Ala. 524, 17 So. 728. In this case the initial hank had not cred- 
ited the proceeds to the account of the owner prior to its insol- 
vency nor subsequently. 

(221) 



§ 144 BANK COLLECTIONS. [Oh. 7 

a counter entry with a notice to the initial bank that 
the money had been paid to the owner.®^ 

So, also, where the last of a series of corresponding 
banks receives and enters on its books, for collection only, 
a draft Avhich had been restrictively indorsed for collec- 
tion by each of the prior transmitting banks, it cannot, 
in reliance on the draft as security, make payment to 
its immediate indorser, and then, on the latter bank's 
suspension, recover the amount of the advances from 
the owner of the draft, who had stopped payment before 
it matured.^^ 

The fact that the correspondent had credited the pro- 
ceeds of paper originally indorsed for collection to the 
sending bank, which in turn credited the owner, and 
that, imder an arrangement with the sending bank, the 
correspondent had ordered a third bank, a creditor of 
the sending bank, to credit the owner Avith the amount, 
will not relieve the correspondent from liability to the 
owner for the proceeds, the sending bank being insol- 
vent, where it appears that there was sufl&cient time 
after the failure of the sending bank for the correspond- 
ent to have countermanded its order to such third 
bank, but the order was not countermanded.®* 

In Texas it has been held broadly that, if the owner 
indorses for collection to the initial bank, the corre- 
spondent bank holds the proceeds in trust for the owner, 
and cannot apply it to any indebtedness due it from the 

62 Boykin v. Bank of Payetteville, 118 N. C. 566, 24 S. E. 357. 

63 Freeman's Nat. Bank v. National Tube Works Co., 151 Mass. 
413, 24 N. E. 779, 21 Am. St. Rep. 461, 8 L. R. A. 42, and cases cited. 

oi Commercial Nat. Bank of Cincinnati v. Hamilton Nat. Bank of 
Ft. Wayne, 42 Fed. 880. 

(222) 



<;;il. 7] RIGHTS AND LIABILITIES. § 145 

initial bank, regardless of the question of notice of its 
insolvency.^® 

Where, in addition to an original indorsement for 
collection, the paper, when transmitted to the corre- 
spondent, is accompanied by a letter of advice, also 
negativing any title in the sending bank, the correspond- 
ent is doubly notified as to the ownership, and cannot 
claim title to the paper or a lien on the paper or its 
proceeds for a debt of the sending bank.^'' 

§ 145. Proceeds of paper originally indorsed in blank. 

Where the paper was originally indorsed in blank to 
the initial bank, and by it indorsed to its correspondent 
for collection, the latter, having no notice from the pa- 
per itself, or otherwise, that it did not belong to the 
initial bank, niaj' retain the proceeds for a general bal- 
ance of account against the initial bank, where there 
had been mutual dealings and customs of long standing 
between the banks, whereby collections were credited 
and debited currently, and statements of account and 
balances were periodically exchanged.'^'^ An indorse- 
ment in blank to the first bank, coupled with such mu- 
ss City Bank of Sherman v. Weiss, 67 Tex. 331, 3 S. W. 299. 
86 Williams v. Jones, 77 Ala. 294, and cases cited; Lawrence v. 
Stonington Bank, 6 Conn. 521; People's Bank of Lewisburg v. Jef- 
ferson County Sav. Bank, 106 Ala. 524, 17 So. 728; First Nat. Bank 
of Circleville v. Bank of Monroe, 33 Fed. 408. In the last case just 
cited, the indorsement was "for collection," and the instructions 
were to "collect and credit proceeds." In the Alabama case above 
cited, the indorsement was "for account of," and the Instructions 
were for "collection and credit." 

e^ Vickrey v. State Savings Ass'n, 21 Fed. 773 ; Cody v. City Nat. 
Bank of Grand Rapids, 55 Mich. 379; Doppelt v. National Bank 

(223) 



§ 145 BANK COLLECTIONS. [( h. 1' 

tual dealings between the two banks, will also authorize 
the correspondent to credit the proceeds absolutely to 
the sending bank, and allow it to draw out the fund, in 
which case it will not be liable therefor to the payee of 
the paper in case of the insolvency of the sending bank.^^ 
Under such circumstances, if money was actually ad- 
vanced by the correspondent bank on the faith of the 
paper as the property of the initial bank, the paper 
must be considered as the property of such initial bank, 
so that trover would not lie against the correspondent 
by the owner.^® 

A bank receiving from a correspondent bank, in due 
course, a check indorsed in blank, and in good faith 
parting with value therefor, or giving an extension on 
an existing debt by reason thereof, is entitled to the pro- 
ceeds as against the owner, though actual collection was 
not made until after the failure of the sending bankJ" 

(B) Enforcing Preference or Establishing Trust. 

By the great weight of authority, the mere collection of the 
proceeds and the giving of credit therefor does not establish a 
trust. The bank becomes merely a debtor for the amount col- 
lected. 

Fraudulent conversion does not per se establish a trust or give 
a right to a preference; but some courts hold that if the 

of RepuWic, 175 111. 432, 51 N. B. 753, affirming 74 111. App. 429. 
Contra, see First Nat. Bank of Meridian v. Strauss, 66 Miss. 479, 
6 So. 232. 

i^sDoppelt V. National Bank of Republic, 175 111. 432, 51 N. B. 
753, affirming 74 111. App. 429. 

es Cody v. City Nat. Bank of Grand Rapids, 55 Mich. 379. 

TO Winfield Nat. Bank v. McWilliams, 9 Okla. 493, 60 Pac. 229. 
(224) 



Ch. 7] RIGHTS AND LIABILITIES. g 145 

paper was received when the bank was insolvent within the 
knowledge of its officers, the proceeds are a trust fund. 

Where remittance was made by a draft or check of the collect- 
ing bank, and the drawer or drawee bank became insolvent be- 
fore such paper was paid, it is the rule in some jurisdictions 
that a trust is impressed on the assets of the insolvent bank for 
the amount of the collection; in other jurisdictions, no trust 
arises in such a case. But if the bank was expressly author- 
ized to send its check or draft in payment, and failed after 
doing so, and the paper was not paid, no trust arises. 

If, however, the proceeds never came into the possession of 
the bank, its assets cannot be impressed with a trust therefor; 
nor can they be so impressed if the proceeds were disposed 
of before insolvency. But the proceeds of paper paid to the 
assignee or receiver of the bank after its insolvency form a 
special trust fund recoverable in full. 

The proceeds once determined to be a trust fund niay be fol- 
lowed into the insolvent estate if they can be traced into the 
assets, or identified as forming part of the assets. The mere 
mingling of the proceeds with the other funds of the collect- 
ing bank will not defeat the trust. 

The right to a trust or preference is not lost or waived by 
° the mere filing of a claim as a general creditor, but is waived 
by proceeding for, and obtaining, an actual adjudication on the 
claim as a general claim. 

§ 146. In general. 

In a leading English case it is laid down broadly that, 
if a fiduciary relation exists, 'the equitable right to fol- 
low funds or property left with the fiduciary in that 
capacity exists, whether his exact status be that of agent, 
bailee, or trustee.'^^ This rule has been followed con- 

TiKnatchbulI v. Hallett, 13 Ch. Div. 696. 

(225) 

16 



§ 146 BANK COLLECTIONS. [Qh. 7 

sistently in England, and the case is a recognized au- 
thority in America. But we have found that the great 
weight of authority is to the effect that on the mere 
collection of the proceeds and the giving of credit there- 
for, the relation becomes that of creditor and debtor.''^ 
This being so, it precludes the possibility of treating 
the bank as a fiduciary having the status either of an 
agent, a bailee, or a trustee, except under special condi- 
tions, which will be considered in the remaining sec- 
tions of this chapter. Nevertheless, the doctrine that, as 
soon as the proceeds are collected in cash and credited 
to the owner, the bank becomes a debtor to the owner 
for the amount, has been extended by some courts, 
which take the position that the bank then becomes a 
trustee for the owner, and not merely a simple debtor.^^ 
As a result of this enlarged doctrine, neither the paper 
nor its proceeds is an asset of the bank; consequently, 
neither passes by a general assignment of the bank, and 
the trust may be enforced against a receiver or assignee, 
and the amount recovered in full.'^* In any case, the 

72 See ante, § 121. See, also, post, §§ 150-154. 

T3 Jones V. Kilbreth, 49 Ohio St. 401, 31 N. B. 346; State v. 
Bank of Commerce of Grand Island (Neb.) 85 N. W. 43; Anheuser- 
Busch Brewing Ass'n v. Morris, 36 Neb. 31, 53 N. W. 1037; Nurse 
V. Satterlee, 81 Iowa, 491, 46 N. W. 1102; Louisiana Ice Co. v. 
State Nat. Bank of New Orleans, 1 McGloin (La.) 181; City Bank 
of Sherman v. Weiss, 67 Tex. 331, 3 S. W. 299. 

Where a bank to which a mortgage was sent for collection and 
remittance of the proceeds failed to remit, the sender may pursue 
the proceeds as a trust fund in the hands of a receiver of the 
bank. Wallace v. Stone, 107 Mich. 190, 65 N. W. 113. A trust 
also arises where the paper was sent "for collection and returns." 
Continental Nat. Bank of New York v. Weems, 69 Tex. 489, 495. 

T4 Louisiana Ice Co. v. State Nat. Bank of New Orleans, 1 Mc- 
(226) 



<3h. 7] RIGHTS AND LIABILITIES. § 147 

burden of establishing a trust is on the party seeking to 
recover the funds in full, and he must establish a clear 
case.''^ 

§ 147. Fraudulent conversion as creating preference or trust. 

We again encounter a conflict of authority on the 
question whether a fraudulent conversion by the bank, 
arising from the fact that it received the paper for col- 
lection when it was insolvent within the knowledge of 
its officers, or from the fact that it was otherwise guilty 
of a conversion of the paper or its proceeds, creates a 
trust or a right to preference. In the federal courts 
and some of the state courts the rule is that a trust, and 
a consequent right of preference, arises from the fraud 
of the bank in receiving the paper knowing itself to be 
hopelessly insolvent.''® Consistently with this rule, it 

Gloin (La.) 181; Griffin v. Chase, 36 Neb. 328, 54 N. W. 572; 
Anheuser-Busch Brewing Ass'n v. Morris, 36 Net. 31, 53 N. W. 
1037; Nurse v. Satterlee, 81 Iowa, 491, 46 N. W. 1102; Farmers' 
.& Mechanics' Nat. Bank v. King, 57 Pa. St. 202; Peak v. Bllicott, 
30 Kan. 156, 1 Pac. 499. 

75 In re Bank of Madison, 5 Biss. 515, Fed. Gas. No. 890. 

'6 St. Louis & San Francisco Ry. Go. v. Johnston, 133 U. S. 566, 
10 Sup. Gt. 390, 33 L. Ed. 683; City of Philadelphia v. Eckels, 98 
Fed. 485; Importers' & Traders' Bank v. Peters, 123 N. Y. 272, 
278, 25 N. E. 319, affirming 51 Hun, 640; Harrison v. Smith, 83 
Mo. 210; German Fire Ins. Go. v. Kimhle, 66 Mo. App. 370. 

Money was deposited in a national bank by a city treasurer 
merely for safe keeping over night, under an arrangement with 
the bank that the part of the money belonging to the city should 
■be separated from state funds the next morning, and credit given, 
to the city. Credit was so given the next morning before bank- 
ing hours, at a time when the bank was in the hands of the bank 
examiner under orders from the comptroller. The officers knew 
at the time the deposit was received, and the credit entered, that 

(227) 



§ 147 BANK COLLECTIONS. [Ch. 7 

has been held that an allegation in a petition to re- 
cover the proceeds as a trust fund that the bank re- 
ceived the paper as bailee, for collection, is not in- 
consistent with an allegation that the deposit of the 
paper was obtained by a fraudulent concealment of the 
insolvency of the bank, and a prayer for rescission of 
the contract.''^ 

On the other hand, other courts hold that, on the col- 
lection of the paper and the actual mingling of the pro- 
ceeds with other funds of the collecting bank, the rela- 
tion of creditor and debtor arises, so that the creditor 
is entitled to no preference, though the bank was in- 
solvent, within the knowledge of its officers, when it re- 
ceived the paper, and failed after collection and before 
remittance."^* A parallel holding is that the right to 
follow trust funds is a property right, not based on the 
theory of fraudulent conversion, and that a fraudulent 
conversion does not establish a trust.^^ Between these 

the bank was insolvent. Held, that the funds never became the 
property of the bank, and were recoverable in full from a re- 
ceiver of the bank. City of Philadelphia v. Eckels, 98 Fed. 485. 

77Higgins V. Hayden, 53 Neb. 61, 73 N. W. 280; St. Louis & 
San Francisco Ry. Co. v. Johnston, 133 U. S. 566. 

's Commercial & Farmers' Nat. Bank of Baltimore v. Davis, 115 
N. C. 226, 20 S. E. 370; Thuemmler v. Barth, 89 Wis. 381, 62 N. 
W. 94; Blake v. State Sav. Bank, 12 Wash. 619, 41 Pac. 909; 
Bruner v. First Nat. Bank of Johnson City, 97 Tenn. 540, 37 
S. W. 286; Sayles v. Cox, 95 Terin. 579; Akin v. Jones, 93 Tenn. 
353. 

79 Slater v. Oriental Mills, 18 R. I. 352, 27 Atl. 433; Nonotuek 
Silk Co. V. Flanders, 87 Wis. 237, 58 N. W. 383; Cavin v. Gleason, 
105 N. Y. 256, 260; Bank of Florence v. United States Savings 
& Loan Co., 104 Ala. 297, 16 So. 110; In re Seven Corners Bank, 
58 Minn. 5, 59 N. W. 633. 

See, also, Illinois Trust & Savings Bank of Chicago v. First 
(228) 



Ch. 7] RIGHTS AND LIABILITIES. § 148 

two lines of authority there seems to be no compromise, 
or intermediate position. It therefore becomes a ques- 
tion merely of choosing "whom ye shall serve." 

§ 148. Remittance made by draft or check — Drawer or 
drawee bank Insolvent. 

The diversity of judicial opinion on the question of 
the existence of a trust, or the right to a preference in 
the proceeds of a collection, is further illustrated by 
the cases which pass on the right to a preference or the 
existence of a trust where remittance was made by draft 
or check, and the drawer or drawee bank failed before 
such paper was paid. The supreme court of Mississippi 
holds that, where a collecting bank takes, in payment 
of a note, a check on itself, drawn by one having suffi- 
cient funds in the bank to pay the check, debits his ac- 
count with the amount, remits by its own check, and 
thereafter fails, the owner of the note is not entitled to 
preference or priority in the distribution of the assets.^" 

Nat. Bank of Buffalo, 15 Fed. 858; Philadelphia Nat. Bank v. 
Dowd, 38 Fed. 172, 2 L. R. A. 480. The debt being, then, a simple 
contract debt, complainant has an adequate remedy at law. In re 
Seven Corners Bank, 58 Minn. 5, 59 N. W. 633; Crothers v. Lee, 
29 Ala. 337. 

80 Billingsley v. Pollock, 69 Miss. 759, 13 So. 828, 30 Am. St. 
Rep. 585. The court in this case, while reaflSrming the doctrines 
laid down in Ryan v. Paine, 66 Miss. 678, 6 So. 320, and Kinney 
V. Paine, 68 Miss. 258, 8 So. 747 (considered later in this sec- 
tion of the text), refuses to extend the "trust" theory to the 
case at bar, remarking that, "wherever there is a trust, it may 
be enforced as such, but calling one sort of claim a trust merely 
to place it on a better footing is not allowable. It has been 
done in some instances, where hard cases have made bad prece- 
dents, which we will not follow." 

(229) 



8 148 BANK COLLECTIONS. [Ch. 7 

To the same effect is a Pennsylvania decision that, 
where the account of the drawee of a draft indorsed to 
a bank for collection was charged with the amount, and 
a draft given therefor by the bank, which failed before 
its draft was presented for payment, no special lien or 
priority arises ; it appearing that the bank did not re- 
ceive any money as the proceeds of the collection, and 
that no part of the funds of the bank had been set apart 
to pay the amount of the collection.®^ 

The rule is the same where the bank had authority to 
remit by check or draft, or its action in so doing was 
ratified by the owner. Thus, where the collecting bank 
was directed to send New York exchange in payment of 
a collection, it was thereby ordered not to send the spe- 
cific money collected, and was authorized to use the 
money and to send a check on a New York bank for the 
amount collected; so that, in case of the insolvency of 
the collecting bank, and the dishonor of the check, the 
owner of the collection is a general creditor only and 
no trust relation arises.®^ 

So, also, where a collecting bank issued its own draft 
for the amount of a collection, and the draft was accept- 
ed by the owners of the collection, and was, in turn, 
forwarded for collection, but was not paid because of 
the suspension of the bank, no trust arises, but the re- 
lation of the parties is simply that of debtor and cred- 
itor.®^ The same rule holds where remittance by check 
or draft is justified by general custom;®* 

81 Freiberg v. Stoddard, 161 Pa. St. 259, 28 Atl. 1111. 

82 Akin V. Jones, 93 Tenn. 353, 27 S. W. 669, 42 Am. St. Rep. 
921, 25 L. R. A. 523. 

S3 Bowman v. First Nat. Bank of Spokane, 9 Wash. 614, 38 Pac. 
211, 43 Am. St. Rep. 870. 

siHallam v. Tillinghast, 19 Wash. 20, 52 Pac. 329. 

(230) 



Oh. 7] RIGHTS AND LIABILITIES. § 149 

There are some cases, however, holding broadly that 
a bank which remitted by a draft on another bank, 
which failed before the draft Avas paid, holds the pro- 
ceeds of the collection as a trust fund for the owner.*^ 

Where the drawer, whose account was overdrawn, 
gave a check in payment of the draft, and the drawee 
bank failed after sending a draft for the amount to the 
collecting bank, the latter may enforce a trust in the 
debt due by such drawer as against the parties to a con- 
sent decree made in a suit to settle priorities between 
creditors of the drawee bank; the collecting bank not 
having been a party to that suit.^® 

§ 149. Refusal to pay customer's check does not give prefer- 
ence. 

The mere refusal of a bank to pay a customer's check 
does not give any right of preference. So, where the 
drawee bank, to which a check was sent by the collect- 
ing bank with directions to apply the proceeds on a 
debt due from the collecting bank, failed before comply- 
ing with such directions, the drawer, on the refusal of 
the drawee to pay the check out of his funds, and after 
payment by him of the check, has a right of action on 
the check against the drawee bank, but no right to pri- 
es Poster V. Rincker, 4 Wyo. 484, 35 Pac. 470; People v. Bank 
of Dansville, 39 Hun (N. Y.) 187. 

86 Kinney v. Paine, 68 Miss. 258, 8 So. 747. The parties to such 
suit cannot be considered as bona fide purchasers of the debt 
of the drawer, which was merely a book account. Id. 

The fact that the drawer's account was overdrawn distinguishes 
this case from Billingsley v. Pollock, 69 Miss. 759, previously con- 
sidered in this section. 

(231) 



§ 150 BANK COLLECTIONS. [Oh. 7 

ority in the distribution of the assets of such bank on 
its insolvency.®'^ 

§ 150, Tracing and following proceeds into insolvent estate 
of collecting bank. 

The old theory that trust money mingled with other 
money cannot be followed as a trust fund because money 
has no ear-marks^® has been thoroughly supplanted by 
the more modern equity doctrine, first definitely an- 
nounced by Lord Justice Knight Bruce in Pennell v. 
Deffell,88 and later followed in Frith v. Cartlandj^" 
and in, the great case of Knatchbull v. Hallett,^^ that 
equity will follow trust money, though mingled with 
other moneys or changed, transformed, or substituted, 
so long as the money in its original or substituted form 
can be traced, and that the right to follow ceases only 
when the means of ascertainment fail. 

In the last case above mentioned Sir George Jessel, 
M. E., says: "If the bailee sells the goods bailed, the 
bailor can in equity follow the proceeds, and can follow 
the proceeds wherever they can be distinguished, either 
being actually kept separate, or being mixed up with 
other moneys. I have only to advert to one other point, 
and that is this: Supposing * * * the moneys 
were simply mixed with other moneys of the trustee, 

sTRomanski v. Thompson (Miss.) 11 So. 828. 

ssDeg V. Deg, 2 P. Wms. 414; Whitecomb v. Jacob, 1 Salk. 161; 
Ryall V. RoUe, 1 Atk. 165; Ex parte Sayers, 5 Ves. 169; Taylor 
V. Plumer, 3 Maule & S. 562. 

80 4 De Gex, M. & G. 372. 

00 2 Hem. & M. 417. See also. Ex parte Cooke, 4 Ch. Dlv. 123. 

91 13 Ch. Div. 696, where the earlier cases are thoroughly dis- 
cussed. 

(232) 



•Ch. 7] RIGHTS AND LIABILITIES. § 150 

using the term again in its full sense as including every 
person in a fiduciary relation, does it make any differ- 
ence, according to the modern doctrine of equity? I 
say none. It would be very remarkable if it were to do 
so." 

This doctrine has been very generally adopted in de- 
termining the right to follow the proceeds of a collec- 
tion made by or through a bank which became insolvent 
after collection, and before remittance.^^ The right to 
follow as a trust fund, and recover in full, the proceeds 
of a collection, is usually sustained if the proceeds can 
be traced to any particular fund in the hands of the as- 
signee or receiver,^^ though the identity of the particu- 

82 Commercial & Farmers' Nat. Bank of Baltimore v. Davis, 115 
N. C. 226, 20 S. E. 370; Freiberg v. Stoddard, 161 Pa. St. 259,. 
28 Atl. 1111; In re Seven Corners Bank, 58 Minn. 5, 59 N. W. 
633; Westfall v. Mullen, Id.; Little v. Chadwick, 151 Mass. 109; 
Edson V. Angell, 58 Mich. 336, 25 N. W. 307; Sherwood v. Milford 
State Bank, 94 Mich. 78, 53 N. W. 923; In re Waterbury, Id.; 
Midland Nat. Bank of Kansas City v. Brightwell, 148 Mo. 358, 
■49 S. W. 994; Gavin v. Gleason, 105 N. Y. 256, 11 N. E. 504; 
Atkinson v. Rochester Printing Co., 114 N. Y. 168, 21 N. B. 178; 
Holmes v. Gilman, 138 N. Y. 376, 34 N. E. 205; Foster v. Riiicker, 
4 Wyo. 484, 35 Pac. 470; Philadelphia Nat. Bank v. Dowd, 38 Fed. 
172, 2 L. R. A. 480; Illinois Trust & Savings Bank of Chicago v. 
First Nat. Bank of Buffalo, 15 Fed. 858, citing Kip v. Bank of 
New York, 10 Johns. (N. Y.) 63; Kansas State Bank v. First State 
Bank of Marion (Kan. Sup.) 64 Pac. 634. 

93 Nurse V. Satterlee, 81 Iowa, 491, 46 N. W. 1102, citing Inde- 
pendent District of Boyer v. King, 80 Iowa, 497, 45 N. W. 908, 
-and Davenport Plow Co. v. Lamp, 80 Iowa, 722, 45 N. W. 1049. 

Where the fund is actually in the hands of the receiver, the 
creditor need not sue in equity to establish his rights, but may 
make summary application by petition. People v. Bank of D'ans- 
-Tille, 39 Hun, 187; In re Le Blanc, 14 Hun, 8. 

(233) 



§ 150 BANK COLLECTIONS. [(_;;ll. 7 

lar money is lost.^* And it is the rule in some jurisdic- 
tions that the proceeds form a trust fund recoverable in 
full, though they cannot be specifically traced to any 
particular fund, if they can be traced generally to the 
insolvent estate.*^ 

Further enlarging the doctrines of equity, the courts 
of Missouri hold that the proceeds of a collection made 
by a bank immediately before, and in its possession at 
the time of, its assignment, form a trust which is im- 
pressed on all the assets, and entitles the owner to a 
preference, though such proceeds never came into the 
hands of the assignee, either in their' original or in a 
substituted form.^" The position of the Missouri courts 
is that, "to an amount thus wrongfully converted, the as- 
signee can lay no claim in equity, and that the wrongful 
conversion immediately preceding the assignment is of 
itself evidence of a corresponding increase in the as- 

siCavin v. Gleason, 105 N. Y. 256, 11 N. B. 504; White v. Com- 
mercial & Farmers' Bank of Rockhill (S. C.) 38 S. E. 453. 

85 Gavin v. Gleason, 105 N. Y. 256; Freiberg v. Stoddard, 161 
Pa. St. 259, 28 Atl. 1111; In re Seven Corners Bank, 58 Minn. 5,. 
59 N. W. 633; Westfall v. Mullen, Id.; Nonotuck Silk Co. v. 
Flanders, 87 Wis. 237, 58 N. W. 383 (overruling McLeod v. Evans, 
66 Wis. 401, 28 N. W. 173, 214, and Francis v. Evans, 69 Wis. 115, 
33 N. W. 93; Bowman v. Evans, 71 Wis. 133, 36 N. W. 629); 
Sherwood v. Milford State Bank, 94 Mich. 78, 53 N. W. 923; In 
re Waterbury, Id.; Peak v. EUicott, 30 Kan. 156, 1 Pac. 499, See, 
also. Central Nat. Bank of Baltimore v. Connecticut Mutual Life- 
Ins. Co., 104 U. S. 54; Van Alen v. American Nat. Bank, 52 N. 
Y. 1; People v. City Bank of Rochester, 96 N. Y. 32; Farmers'" 
& Mechanics' Nat. Baak v. King, 57 Pa. St. 202. 

9s First Nat. Bank of Lapeer v. Sanford, 62 Mo. App. 394, fol- 
lowing Harrison v. Smith, 83 Mo. 210. 

(234) 



Ch. 7] RIGHTS AND LIABILITIES. § 150 

signed assets."^'' This position is believed to be an un- 
warranted enlargement of the general rules of equity- 
relating to trusts and the following of trust funds. It 
is also obnoxious to the doctrine that the right to a pref- 
erence or to follow the proceeds as a trust is not based 
on mere conversion of the proceeds.^^ The position of 
the Missouri courts is also considered later in treating 
of the right to follow, as a trust fund, proceeds which 
have been disposed of by the bank before insolvency.®* 
There is some difference of judicial opinion as to the 
effect of mingling the proceeds with other funds of the 
bank. The better rule, following the general principles 
of equity considered above, is that such a mingling of 
the proceeds will not prevent the enforcement of a pref- 
erence or trust, if it can be shown that the proceeds 
came into the hands of the receiver along with the other 
funds.^"" Indeed, many courts assert squarely that the 
fact of mingling the proceeds of the collection with the 
general funds of the bank itself establishes a trust and a 
right to priority.^"^ But if the funds arising from the 
collection have become so mingled with other funds 

97 First Nat. Bank of Lapeer v. Sanford, 62 Mo. App. 394; Har- 
rison V. Smith, 83 Mo. 210. 

98 See ante, § 147. 

99 See post, § 153. 

100 Thompson v. Gloucester City Savings Inst. (N. J. Ch.) 8 Atl. 
97; Hoffman v. First Nat. Bank of Jersey City, 46 N. J. Law, 
604; First Nat. Bank of Montgomery v. Armstrong, 36 Fed. 59. 

Where the trust money has heen mingled by the bank with 
its own funds, a payment from the combined fund will be pre- 
sumed to have come from the funds of the bank, and not from 
the trust fund. State v. Bank of Commerce of Grand Island (Neb.) 
85 N. W. 43; Continental Nat. Bank of New York v. Weems, 69 
Tex. 489. 

101 AVindstanley v. Second Nat. Bank of Louisville, 13 Ind. App. 

(235) 



§ 150 BANK COLLECTIONS. [Ch. 7 

that it is impossible to trace or identify them as form- 
ing a part of the fund sought to be charged, they lose 
their trust and preferential character.^''^ 

However, the mere fact that a subagent of the corre- 
spondent bank had collected paper sent for collection to 
the correspondent, which had failed, does not amount 
to such a commingling of the funds with the general 
funds of the correspondent bank as will deprive the 
funds of their trust character.!"^ So, too, where the 
collecting bank received the check of the drawee on an- 
other bank in payment of the collection, and the check 
was collected through the clearing house, and a memo- 

544, 41 N. E. 956; German Fire Ins. Co. v. Kimble, 66 Mo. App. 
370; Ryan v. Phillips, 3 Kan. App. 704, 44 Pac. 909. 

102 Little V. Chadwlck, 151 Mass. 110, 23 N. E. 1005; Bnglar 
V. Offutt, 70. Md. 78, 16 Atl. 497; Goqdell v. Buck, 67 Me. 514; 
Thompson's Appeal, 22 Pa. St. 16; Columbian Bank's Estate, 147 
Pa. St. 422, 23 Atl. 625, 626, 628; Van Alen v. American Nat. 
Bank, 52 N. Y. 1; Holmes v. Oilman, 138 N. Y. 369, 34 N. B. 205; 
Union Nat. Bank of Chicago v. Goetz, 138 111. 127, 27 N. E. 907; 
Neely v. Rood, 54 Mich. 134, 19 N. V?. 920; Sherwood v. Milford 
State Bank, 94 Mich. 78, 53 N. W. 923; Wallace v. Stone, 107 
Mich. 190, 65 N. W. 113; Central Nat. Bank of Baltimore v. In- 
surance Co., 104 U. S. 54, 68; Peters v. Bain, 133 U. S. 670, 693, 
10 Sup. Ct. 354; Illinois Trust & Savings Bank of Chicago v. 
First Nat. Bank of Buffalo, 15 Fed. 858; 2 Story, Eq. Jur. §§ 
1258, 1259; 2 Pomeroy, Eq. Jur. § 1058; 1' Lewin, Trusts (1 Am. 
Ed.) 241. Contra, see Ryan v. Phillips, 3 Kan. App. 704, 44 Pac. 
909. 

103 Commercial Bank of Pennsylvania v. Armstrong, 148 TJ. 
S. 50, 13 Sup. Ct. 533, 37 L. Ed. 363; Armstrong v. Commercial 
Bank of Pennsylvania, Id., affirming 39 Fed. 684. If the corre- 
spondent in such case was indebted to its subagent, and, on col- 
lection by the latter, the former was credited with the amount, 
the proceeds of the collection were thereby brought into the 
possession of the correspondent. Id. 

(236) 



Oh. 7] RIGHTS AND LIABILITIES. g 151 

randum placed with the bank's cash, indicating that 
the proceeds of the collection were the property of the 
sender, there was not such a mingling of the proceeds 
with the general funds as to destroy the trust and pref- 
erential character of the proceeds.^"* 

JMoney received by a bank for the express purpose of 
transmitting the same to the owner of a note, in order 
to take it up, and immediately mingled with its general 
funds, becomes, on the subsequent failure of the bank 
without having transmitted it, a trust fund recoverable 
in full from the assignee of the bank, though not specif- 
ically traceable to the funds in his hands.^"^ 

Where the initial bank becomes insolvent after the 
collection has been made by its correspondent, and the 
proceeds mingled with the general fund, but, before 
insolvency, the correspondent had remitted some of the 
proceeds of its collections generally, and, after insol- 
vency, had remitted to the assignee part of the funds re- 
maining in its hands as the proceeds of all collections 
made for the insolvent bank, the owner has no specific 
lien on, or preference in, the funds in the hands of the 
assignee.^"* 

§ 151. Proceeds never in possession of bank. 

Where the proceeds were never actually realized by 
the collecting bank, as where the bank, instead of col- 

104 First Nat. Bank of Montgomery v. Armstrong, 36 Fed". 59. 
In this case the court says: "The old idea that, because money 
has no earmarks, it cannot be followed when mingled with the 
funds of a wrongdoer, has long since been exploded." 

105 Ryan V. Phillips, 3 Kan. App. 704, 44 Pac. 909. 

106 Reeves v. State Bank, 8 Ohio St. 465, 483. 

(23'7) 



§ 151 BANK COLLECTIONS. [Ch. 7 

lecting, took a new note to itself from the obligor, the 
owner cannot, on the failure of the bank, recover the 
amount of the note as a trust fund from the assignee of 
the bank, though he might recover the note itself.^"^ 
So, too, where a draft was received for "collection and 
return," and the bank took the check of the debtor, one 
of its depositors, and merely charged the amount to 
him and credited the account of the drawer, without 
separating the amount from other funds of the bank, no 
trust arose which would create a preference in case of 
the bank's insolvency.^"® 

Even the supreme court of Missouri, which has gone 
as far as any other court in extending the equitable 
doctrines as to following trust funds, denied a prefer- 
ence to the initial collecting bank in the assets of its in- 
solvent correspondent, where the latter had received no 
money in payment, but had accepted payment partly by 
a draft of another bank, which since became insolvent 
before paying the draft, and partly by charging the ac- 
count of its depositors; on the ground that the assets 
of the correspondent bank had in no wise been augment- 
ed by the collection.^ °^ 

It goes almost without saying that a bank is not liable 
as trustee for money collected by its president as a trus- 
tee, and paid into the bank on a certificate of deposit in 

107 Harrison Nat. Bank of Cadiz v. EUicott, 31 Kan. 173, 1 Pac. 
593, citing People v. Merchants' & Mechanics' Bank, 78 N. Y. 
269, 34 Am. Rep. 532; Morse, Banks & Banking, 384 et seq. 

108 Anheuser-Busch Brewing Ass'n v. Clayton, 6 C. C. A. 108, 
56 Fed. 759, 13 U. S. App. 295. But see Continental Nat. Bank ot 
New York v. Weems, 69 Tex. 489. 

109 Midland Nat. Bank of Kansas City v. Brightwell, 148 Mo. 358. 

(238) 



Ch. 7] RIGHTS AND LIABILITIES. § 153 

his name, where the bank was in no way connected with 
the trust."" 

§ 152. Amount of note against customer charged to his 

account before insolvency of bank. 

The mere charging of the amount of the paper to the 
account of a customer, which is sufficient to pay it, and 
the return of the paper to him, is not such a specific ap- 
propriation of any part of the funds of the bank to the 
payment of the debt as will create a trust in the assets 
of the bank on its insolvency.^^^ But it has been held 
that, where a bank receiving for collection, from one 
not a customer of the bank, a note made by one of its de- 
positors, charges the amount thereof to the account of 
the maker, Avho has at that time sufficient funds in the 
bank to meet it, the bank holds the amount of the col- 
lection in trust for the owner of the note, and he may 
recover in full from its receiver.^^^ 

§ 153. Proceeds disposed of before insolvency. 

The extreme limit of the extension of the equitable 
doctrines as to following the proceeds of a collection as 
a trust fund is exemplified in the cases holding that the 
beneficiary — that is, the owner — is entitled to prefer- 
no Alpena Nat. Bank v. Greenbaum, 80 Mich. 1, 44 N. W. 1123. 
m People V. Merchants' & Mechanics' Bank, 78 N. Y. 269, 34 
Am. Rep. 532; Anheuser-Busch Brewing Ass'n v. Clayton, 6 C. 
C. A. 108, 56 Fed. 759, 13 V. S. App. 295; Billingsley v. Pollock, 
69 Miss. 759, 13 So. 828, 30 Am. St. Rep. 585; Freiberg v. Stod- 
dard, 161 Pa. St. 259, 28 Atl. 1111; Midland Nat. Bank of Kansas 
City V. Brightwell, 148 Mo. 358, 49 S. W. 994. 

112 people V. Merchants' Bank of Binghamton, 92 Hun, 159, 36 
N. Y. Supp. 989; Arnot v. Bingham, 55 Hun, 553, 9 N. Y. Supp. 68. 

(239) 



§ 153 BANK COLLECTIONS. [Ch. 7 

ence, though the insolvent had exhausted such proceeds 
in paying its own debts, and consequently the proceeds 
never entered into the estate of the insolvent, nor form- 
ed part of the assets.^ ^^ The better rule is that the funds 
must be traced into the hands of the receiver or assignee, 
and that, if they have been used up by the bank prior 
to its failure and the appointment of the assignee or re- 
ceiver, no trust or preference can be enforced.^ ^* 

In harmony with this latter rule, it has been held 
that, where no specific instructions were given as to the 
disposition of the proceeds, and thfey were mingled with 
the other funds of the collecting bank, and credited to 
the sending bank, and drawn against, the sending bank 
is an ordinary creditor, and not entitled to preference 

lis First Nat. Bank o£ Lapeer v. Sanford, 62 Mo. App. 394; 
Harrison v. Smith, 83 Mo. 210; Davenport Plow Co. v. Lamp, 80 
Iowa, 722, 45 N. W. 1049; McLeod v. Evans, 66 Wis. 401, 28 N. 
W. 173; Francis v. Evans, 69 Wis. 115, 33 N. W. 93. 

The two cases last cited were overruled in Nonotuck Silk Co. 
V. Flanders, 87 Wis. 237, 58 N. W. 383. 

The Iowa case above cited was severely criticised in Slater v. 
Oriental Mills, 18 R. I. 352, 27 Atl. 443, for making no distinc- 
tion between funds remaining in the estate, and going to swell 
the assets, and funds that have been dissipated, and do not go 
to swell the assets. 

The supreme court of Missouri expressly admits that it is some- 
what in advance of the doctrines of the English chancery courts, 
and of most of the courts of the various states of the Union. See 
Midland Nat. Bank of Kansas City v. Brightwell, 148 Mo. 358, 
49 S. W. 994. 

114 Frank v. Bingham, 58 Hun, 580, 12 N. Y. Supp. 767; Bruner 
V. First Nat. Bank of Johnson City, 97 Tenn. 540, 37 S. W. 286; 
Thuemmler v. Barth, 89 Wis. 381, 62 N. W. 94; In re Seven Cor- 
ners Bank, 58 Minn. 5, 59 N. W. 633; Westfall v. Mullen, Id. 

(240) 



Ch. 7] BIGHTS AND LIABILITIES. § 154 

in case of the insolvency of the collecting taank.^^^ The 
same rule applies where a check deposited in a bank for 
collection is sent to the clearing house, and there used 
up in liquidating the balance due the clearing house 
from the collecting bank on that day's business, and the 
owner is not entitled to a preference in case the collect- 
ing bank becomes insolvent on the same day, though the 
assignee received from the clearing house, in the bank's 
general account, more than enough to pay the check.^^^ 
Nor is the receiver of a bank to which a draft had been 
delivered for collection liable to the owner for the pro- 
ceeds of the draft as a trust fund, where such bank, be- 
fore insolvency, had converted the draft by sending it 
to another bank to be applied on the former's over- 
drafts, though the latter bank had security for the over- 
drafts, since the proceeds of the draft never came into> 
the possession of the receiver.^^'^ 

§ 154. Proceeds collected by assignee or receiver. 

The proceeds of a collection paid to the receiver of the 
collecting bank after its insolvency are held by him as 
a special trust fund, which may be recovered in full.^^* 

115 State V. Southern Bank, 33 La. Ann. 957. See, also, Wil- 
liams V. Cox, 97 Tenn. 555. 

116 In re Seven Corners Bank, 58 Minn. 5, 59 N. W. 633; West- 
fall V. Mullen, Id. Contra, see Kansas State Bank v. First State 
Bank of Marion (Kan.* Sup.) 64 Pac. 634, where the use of the 
paper and proceeds in making daily clearance is held to augment 
the assets. 

iiT Thuemmler v. Barth, 89 Wis. 381, 62 N. W. 94, and cases 
cited. See, also. In re Hallett [1894] 2 Q. B. Div. 237; Ex parte 
Blane, Id. 

118 Henderson v. O'Conor, 106 Cal. 385, 39 Pac. 786; Jockusch 
V. Towsey, 51 Tex. 129; Guignon v. First Nat. Bank of' Helena, 

(241) 



§ 154 BANK COLLECTIONS. [Ch. 7 

It is readily seen that, in sucli case, the proceeds form a 
distinct part of the assets of the bank. The rule is es- 
pecially pertinent if the paper was originally sent to the 
bank "for collection," and ^vas credited "subject to pay- 
ment." ^^^ The rule has been applied where the col- 
lecting bank took the check of the debtor for the amount 
of paper left for collection, but the check was not paid 
until after the collecting bank had suspended ;^2o j^^^j 
where the bank accepted a check in payment, and, in- 
stead of demanding j^ayment, took a certification of the 
check, and suspended before it was paid, payment hav- 
ing been made ultimately to the receiver ;^^^ and where 
the bank failed before checks deposited for collection 
were collected, but the proceeds came into the hands of 
the receiver, and there had been no agreement that the 
checks should be treated as cash, or could be drawn 
against.^^^ 

The proceeds of commercial paper fraudulently re- 
ceived by a bank for collection when it was insolvent, 
Avithin tlie knowledge of its ofticers, are sufficiently 

22 Mont. 140, 55 Pac. 1051, 1097. See, also, cases cited in notes 
119-124, infra. 

Checlts deposited in a bank for collection at a time when its 
condition was such as to charge its officers with knowledge of 
Its hopeless insolvency, and remaining uncollected when the hank 
suspended, may be reclaimed by the owner from the receiver of 
the bank. Richardson v. Denegre, 93 Fed.- 572. 

110 First Nat. Bank of Wellston v. Armstrong, 42 Fed. 193. 

120 German-American Bank v. Third Nat. Bank, Fed. Cas. No. 
5,359, 18 Alb. Law J. 252. 

121 Levi V. National Bank of Missouri, 5 Dill. 104, Fed. Cas. 
No. 8,289. 

122 Beal V. City of Somerville, 50 Fed. 647, 1 C. C. A. 598, 5 XJ. 
S. App. 14. 

(242) 



Ch. 7] RIGHTS AND LIABILITIES. 8 155 

traced to establish a preference where it is shown that 
they are included in a fund paid over to the receiver by 
a correspondent as the proceeds of credits made after 
failure of the bank, but bef6re notice thereof to the cor- 
respondent.^-^ 

Where the initial bank fails after notice of a complet- 
ed collection by its correspondent in another state, and 
after crediting the amount without authority from the 
owner, and its receiver receives the proceeds, he holds 
them in trust for the owner.^^* 

S 155. Bank as owner of paper and proceeds. 

Consistent with the rules heretofore considered as 
to the circumstances under Avhich title passes to the 
bank is the doctrine that no preference is allowable 
where the paper was indorsed in blank and deposited 
for credit, and the depositor allowed to draw out part of 
the fund;^-^ and that no right to a preference for the 
proceeds of a check exists Avhere it was deposited and 
treated as cash, and charged as such to a correspondent 
bank to which it was sent, and the initial bank gave to 
the depositor, for part of the amount, cash and a cer- 
tificate of deposit, and absolute credit for the balance, 
prior to insolvency.^^'^ 

So, also, where a running account is kept, and an ab- 
solute debit and credit given, between the two banks, and 

123 Bruner v. First Nat. Bank of Johnson City, 97 Tenn. 540, 37 
S. W. 286, and cases cited. 

124 Henderson v. O'Conor, 106 Cal. 385, 39 Pac. 786. 

125 Williams v. Cox, 9? Tenn. 555; State v. Southern Bank, 33 
La. Ann. 957. 

i26Friberg v. Cox, 97 Tenn. 550, 37 S. W. 283. 

(243) 



§ 155 BANK COLLECTIONS. [Ch. 7 

a balance is struck at regular periods, and remittances 
immediately made accordingly, the proceeds of the col- 
lections having been mingled with other funds of the 
collecting bank, the creditor bank has no lien on any 
specific funds, and is not entitled to a preference in 
case of the insolvency of the collecting bank.^^'^ In such 
case, the relation is merely that of debtor and creditor, 
and "each sum collected, as it came in, became the prop- 
erty of the collecting bank, who simply became liable to 
account for it to the other on the next settling day."^^* 
Nor can a claim of preference be predicated of the pro- 
ceeds of a collection sent with directions to "forward 
draft to me for balance," less the bank's charges, since, 
in such case, title to the proceeds, when realized, is in 
the bank.129 

Where it was the intention of both parties that the 
owner of a note in the hands of a bank for collection 
should receive credit for the proceeds when collected, 
and that the bank could treat the funds as it did funds 
of other depositors, the bank had a right to mingle the 
funds with the other funds, so that, on its subsequent 
insolvency, the owner was simply an ordinary creditor, 
and was not entitled to a preference, and could not fol- 
low the proceeds as a trust fund.^^° But where the col- 
lecting bank had not been in the habit of crediting the 
proceeds of collections as a deposit for a particular cus- 
tomer, but had always remitted the proceeds promptly, 

12T People V. City Bank of Rochester, 93 N. Y. 582. 
128 People V. City Bank of Rochester, 93 N. Y. 582. 
i29Sayles v. Cox, 95 Tenn. 579, 32 S. W. 626. 
130 Union Nat. Bank v. Citizens' Bank ot Union City, 153 Ind. 
44, 54 N. B. 97. 
(244) 



Ch. 7] RIGHTS AND LIABILITIES. § 157 

the customer, on its failure after collecting paper for 
him, may receive in full from the receiver.^^i 

§ 156. Preference limited to assets realized at time of failure 
of bank. 

Where the bank fails after collecting, but before re- 
mitting, and its assets, at the time of the failure, are less 
in amount than the proceeds of the collection, the trust 
nature and lien following the proceeds is limited to the 
cash on hand at the time of the failure, the presumption 
being that such cash is the residuum of the trust money, 
and does not extend to the fund subsequently realized 
by the receiver out of other assets.^ ^^ 

§ 157. Waiver of preference or trust. 

The right to follow the proceeds of a collection as a 
preferential trust fund is not lost or waived by merely 
filing a claim as a general creditor ;^^^ nor by accepting 
a dividend from an insolvent collecting bank, as a gen- 
eral creditor, in ignorance of the fact that the bank, 
when it received the paper for collection., was hopelessly 
insolvent, within the knowledge of its officers, and had 

131 Hunt V. Townsend (Tex. Civ. App.) 26 S. W. 310, citing Con- 
tinental Nat. Bank of New York v. Weems, 69 Tex. 489, 6 S. W. 
802, 5 Am. St. Rep. 85. 

132 Boone County Nat. Bank v. Latimer, 67 Fed. 27. 

That the trust for the amount of the proceeds is impressed on 
all the assets, see Continental Nat. Bank of New York v. Weems, 
69 Tex. 689, 6 S. W. 802, 5 Am. St. Rep. 85, and cases cited in 
notes 95, 96 and 100 supra. 

Presumption that payments made from fund with which proceeds 
were mingled were made from the portion belonging to the bank 
and not from the trust money, see supra, note 100. 

133 Nurse v. Satterlee, 81 Iowa, 491, 46 N. W. 1102. 

(245) 



§ 157 BANK COLLECTIONS. [Ch. 7 

thus committed a gross fraud on the depositors, where a 
second dividend was refused, and the first refunded, af- 
ter knowledge of the facts.^^* But the right to prefer- 
ence is lost by proving up the claim as an unpreferred 
claim, and obtaining an adjudication thereon as a gen- 
eral claim, and accepting dividends on it as such>^^ 

13* Importers' & Traders' Nat. Bank v. Peters, 123 N. Y. 272, 
25 N. E. 319, affirming 51 Hun, 640, 4 N. Y. Supp. 599. See, also, 
Allerton v. AUerton, 50 N. Y. 670. 

135 Anheuser-Busch Brewing Ass'n v. Morris, 36 Neb. 31, 53 N. 
W. 1037. 
(246) 



Ch. 8] 



FORGED OR ALTERED PAPER. 



CHAPTER VIII. 

COLLECTION OP FORGED' OR ALTERED PAPER. 

§ 158. What law governs liability of collecting bank. 

159. Name of maker or drawer forged. 

160. Estoppel of bank by acts of cashier. 

161. Drawee bank not charged with knowledge of alterations. 

162. Indorsement of payee forged. 

163. Diligence in notifying parties to paper. 

164. Liability of collecting bank on its indorsement of forged 

paper. 

165. Charging back amount of forged or altered paper. 

166. Recovery back of payments made on forged or altered 

paper. 

167. Bank's agency undisclosed. 

168. Effect of certiilcation of paper by drawee bank. 

169. Ratification and waiver. 

The laws of the place where the immediate acts constituting 
the mistaken or wrongful payment of forged paper are per- 
formed govern the liability of the collecting bank to the owner. 

The general rule that the drawee is charged with knowledge 
of the signature of the drawer renders the drawee bank liable 
to a bona fide holder of paper paid by it, on which the signature 
of the drawer was forged. The rule does not apply in favor 
of a payee who indorsed the forged paper to the bank. 

The drawee bank is not, however, charged with knowledge 
of the genuineness of the body of the instrument as between 
itself and others having equal means of ascertaining the ex- 
istence of an alteration. 

A collecting bank is liable to the true owner if it pays the 
paper on a forged indorsement of the name of the payee; but 

(247) 



8 158 BANK COLLECTIONS. [Ch. 8 

an indorsement of the payee's name is not forged if made by 
the person intended as payee, though the paper was procured 
by his fraud and falge representations as to his identity. 

The bank must use reasonable diligence in notifying the 
parties of the forgery or alteration. 

In some jurisdictions, the collecting bank, on indorsing 
forged paper without restriction or qualification, is liable as 
a general indorser, though the paper had been previously in- 
dorsed to it restrictively for collection. The rule is different in 
the federal courts. If the collecting bank itself indorses the 
paper for collection, it is not liable as general indorser. 

The right to recover back payments made on forged or altered 
paper is governed, for the most part, by the rules governing 
the recovery of payments made by mistake. If the collect- 
ing bank, before notice of the forgery or alteration, paid the 
amount over to the sending bank, it is not liable; but a mere 
credit is not a payment within this rule. Successive indorsers 
who have in turn paid money on the paper by mistake, the 
name of the first indorser having been forged, may recover, 
each from his immediate indorser. 

The bank is accountable for money received on forged paper 
if it did not disclose its so-called agency for collection. 

The acts of the bank may be waived or ratified, as where a 
settlement is made with the wrongdoer, with full knowledge 
of all the facts. 

§ 158. What law governs liability of collecting bank. 

Reasoninji' by analogy from the rules detennining 
what law governs the relation between the depositor 
and the collecting bank,^ we may state that the laws of 
the place of the performance of the immediate acts con- 
stituting the mistaken or wrongful payment of forged 
paper by a collecting bank govern its liability therefor 

1 See ante, § 6. 

(248) 



Ch. 8] FORGED OR ALTERED PAPER. g 158 

to the true owner. No American case directly in point 
has been fonncL, but a very instructive Englisli case is 
available. 

In deciding what law governed the liability of a Lon- 
don bank, with a branch in Paris, to the owner of a 
cheque crossed generally, and drawn on the London 
bank, which had been presented to the Paris branch for 
collection, and paid by it on a forged indorsement of 
the name of the last indorsee, the laws of France ex- 
onerating the collecting bank in such a case, and the 
laws of England rendering it liable for conversion, the 
court of queen's bench recently (189.6) said: "Collec- 
tion had to be obtained by acts done partly in Paris and 
partly in England, and as soon as the person carrying 
-out these acts — if I may assume that they were all car- 
ried out by one person for the collecting bank — reached 
England, he came under English law, and anything done 
by him subsequently, if it amounted to a wrong, must 
be justified, if at all, by English law. But that is not 
■conclusive of 'the matter. It is necessary to consider 
whether any acts were done in England for the purpose 
of carrying out what was legitimate by French law, but 
which, constituting a legal wrong in England, are un- 
protected by English law. Upon behalf of the plaintiffs 
it was contended that the case ought to be dealt with as 
if the post office did not exist, and the bank in Paris con- 
sisted of one individual, who personally carried out the 
complicated transaction which was in fact effected 
through the medium of the post, and the cross entries 
made in the books of the bank. Under such circum- 
stances, it would be necessary for the individual to carry 
the cheque to England, and proceed to London for the 

(249) 



§ 159 BANK COL.LEK3TIONS. " [Ch. 8 

purpose of cashing it for a person who was not the true 
owner. If the individual presented it for payment in 
England, and received payment there, he would by both 
those acts have committed what amounts to conversion 
in English law. Upon analysis it will be seen that those 
acts were done by the French bank, — it is immaterial 
whether by traveling to England or by means of third 
persons, — and the question is whether, according to En- 
glish law, the transaction amounts to a conversion." ^ 

§ 159. Name of maker or drawer forged. 

As a general ru,le, the drawee of a check or draft is 
charged with knowledge of the handwriting of its cus- 
tomer or correspondent, the drawer, and, if the draA\ee 
pays the paper, it must stand the loss if the paper was a 
forgery, and has passed into' the hands of a bona fide- 
purchaser.^ 

The leading case on this question states that it was 

2 La Cave & Co. v. Credit Lyonnais, 66 Law J., Q. B. 226. See, 
also, Kleinwort v. Le Comptoir Natlonale d'Escompte de Paris, 63 
Law J., Q. B. 674, [1894] 2 Q. B. Div. 157. 

3 Northwestern Nat. Bank of Chicago v. Bank of Commerce of 
Kansas City, 107 Mo. 402, 410, 17 S. W. 982, 15 L. R. A. 102; Stout 
V. Benoist, 39 Mo. 277, and cases cited; United States IVTat, Bank v. 
National Park Bank, 59 Hun, 495, 13 N. Y. Supp. 411, afflrmed 
(on opinion of court below) in 129 N. Y. 647, 29 N. B. 1028; Craw- 
ford V. West Side Bank, 100 N. Y. 54, 2 N. E. 881; Oppenheim v. 
West Side Bank, 22 Misc. Rep. 722, 50 N. Y. Supp. 148; First 
Nat. Bank of Carthage v. Yost, 58 Hun, 606, 11 N. Y. Supp. 862; 
3 Ata. & Eng. Enc. Law, 222; Price v. Neal, 3 Burrows, 1354. 

The fact that the signature of the drawer had been, touched 
up somewhat with a brush or quill, a "t" crossed, an "i" dotted,, 
and a period added, does not render it a forgery. United States 
Nat. Bank v. National Park Bank, supra, which see for sufficiency 
of evidence as to forgery of the drawer's signature. 

(250) 



Ch. 8] FORGED OR ALTERED PAPER. ^159 

incumbent on the drawee to satisfy himself "that the bill 
drawn upon him 'was the drawer's hand' before he ac- 
cepted or paid it ;" and that, having paid it to a bona fide 
indorser for value, he cannot recover back the money 
from him, though the signature of the drawer was forg- 
ed.* 

In a Massachusetts case, decided in January, 1901, 
Holmes, C. J., in holding that the drawee bank cannot 
recover back money paid through the clearing house to 
a collecting bank, on a forged check payable to cash and 
unindorsed, on the ground that it was charged with 
knowledge of the signature of the dra\\'er, and that, un- 
der the evidence, it could not have been misled by the 
lack of indorsement, said: "The plaintiff's argument 
is directed to proving that we should not adopt the rule 
laid down in Price v. Neal, 3 Burrows, 1354, according 
to which a drawee paying a forged draft or check to a 
bona fide purchaser cannot recover back the money paid. 
We are aware that this rule has been questioned by some 
text writers ; but it is of such universal, or nearly univer- 
sal, acceptance, that we shall go into no extended dis- 
cussion. * * * Probably the rule was adopted from 
an impression of convenience, rather than for any more 
academic reason ; or perhaps Lord Mansfield took - the 
case out of the doctrine as to payments under a mistake 
of fact, by the assumption that a holder who simply pre- 
sents negotiable paper for payment makes no represen- 
tation as to the signature, and that the drawee pays at 
his peril." ^ 

4 Price V. Neal, 3 Burrows, 1355. To same effect is Smith v. 
Mercer, 6 Taunt. 76. 

B Dedham Nat. Bank v. Everett Nat. Bank (Mass.) 59 N. E. 62. 
See, also, cases and authorities cited in above case. 

(251) 



§ 159 BANK COLLECTIONS. |"0h. 8 

The doctrine that the drawee, who has paid a forged 
checlv or draft, is charged with knowledge of the draw- 
er's signature, is not available to the payee, who took 
the check from a stranger Avithout inquiry, though in 
good faith, and himself indorsed it, and thereby gave it 
currency and credit ; since the indorsement by the payee 
gives the paper the appearance of genuineness, and tends 
to divert the drawee from scrutiny and inquiry.^ 

This modification of the general rule is of general ap- 
plication; and will relieve the drawee from liability to 
any party to the paper who has in any way contributed 
to the success of the fraud, or to the mistake of fact un- 
der which the payment was made.'' 

A peculiar case decided by the supreme court of Louisi- 
ana is governed by this modification of the general rule. 
The holding in that case is that, where a steamboat 
agent, after being informed by letter that a draft drawn 
on the captain of the boat had been deposited in a cer- 
tain bank for collection, went to the bank on the day it 
was due, described and called for the draft, and volun- 
tarily paid it without further inquiry, the bank, which 
received no compensation for the transaction, and made 
no entries of it on the books, is not liable to him for the 
amount thereof, both the letter and the draft having 
been forged, where it appeared that the draft was de- 

s National Bank of North America v. Bangs, 106 Mass. 441 ; El- 
lis V. Ohio Life Insurance & Trust Co., 4 Ohio St. 628; Birmingham 
Nat. Bank v. Bradley, 103 Ala. 109, 15 So. 440, and cases cited. 
See, also, Green v. Purcell Nat. Bank, 1 Ind. Ter. 270, 37 S. W. 50. 

7 Gloucester Bank v. Salem Bank, 17 Mass. 33, 42; Ellis v. Ohio 
Life Insurance & Trust Co., 4 Ohio St. 628; National Bank of North 
America v. Bangs, 106 Mass. 441. 



Ch. 8] FORGED OR ALTERED PAPER. § K.o 

posited by a stranger with instructions that, if no one 
called to pay it before three o'clock, it was to be given to 
a notary for protest, and plaintiff called and paid it a 
few minutes later, and the amount was turned over to 
the depositor on the same day.* 

§ 160. Estoppel of bank by acts of cashier. 

While it is true that the cashier is the general execu- 
tive officer of the bank for whose acts it must stand as 
sponsor, yet, to create an estoppel against the bank by 
reason of his acts and representations as to forged paper, 
his connection with the transaction must be definitely 
shown. The force of this rule is well shown in a case 
where a forged certificate of deposit was sent by plaintiff 
to defendant for collection, and by the latter sent to the 
bank purporting to have issued it. The cashier of the 
last-named bank passed it to the bookkeeper with other 
paper received from defendant, and a checlt was sent cov- 
ering the aggregate amount of all the paper so received. 
The forgery was not discovered until after business 
hours of that day, when the bank immediately notified 
plaintiff and its principal of the forgery. On the next 
day it returned the certificate to defendant, who re- 
credited such bank with the amount thereof under a gen- 
eral agreement to that effect respecting commercial pa- 
per found not good. It was held that defendant was 
justified in refunding the money to such bank as money 
paid by mistake, and that the passing of the forged cer- 
tificate over to the bookkeeper did not amount to such a 
recognition of the genuineness of the certificate as would 

8 Stephenson v. Mountj 19 La. Ann. 295. 

(253) 



§ 162 BANK COLLECTIONS. [Ch. 8 

preclude the bank from setting up the subsequently dis- 
coyered forgery, in the absence of a showing that the. 
cashier actually passed on the genuineness of the certifi- 
cate, or that it was his duty to do so, or that his acts 
were communicated to plaintiff or to defendant.® 

S 161. Drawee bank not charged with knowledge of altera- 
tions. 

The rule considered in the preceding section, that the 
drawee is charged with knowledge of the signature of 
the drawer, does not charge the drawee with knowledge 
of anything but the signature of the drawer. It does 
not charge him with knowledge of the genuineness of 
the body of the instrument, as between himself and other 
parties haring equal means of determining the existence 
of an alteration.^" 

§ 162. Indorsement of payee forged. 

A bank which collects and pays to the depositors there- 
of checks, payable to order, on which the indorsement 

Allen V. Fourth Nat. Bank of New York, 59 N. Y. 12, affirming 
5 Jones & S. 137, distinguishing Price v. Neal, 3 Burrows, 1354, 
and citing Goddard v. Merchants' Bank, 4 Comst. (N. Y.) 149, and 
National Bank of Commerce v. National Mechanics' Banking Ass'n, 
55 N. Y. 21l/note. 

10 Crawford v. West Side Bank, 100 N. Y. 54, 2 N. B. 881; United 
■States Nat. Bank v. National Park Bank, 59 Hun, 495, 13 N. Y. 
Supp. 411, affirmed (on opinion of court below) in 129 N. Y. 647, 
29 N. B. 1028; National Bank of Commerce v. National Mechanics' 
Banking Ass'n, 55 N. Y. 211; White v. Continental Nat. Bank, 64 N. 
Y. 316; Oppenheim v. West Side Bank, 22 Misc. Rep. 722, 50 N. Y. 
Supp. 148; Metropolitan Nat. Bank v. Merchants' Nat. Bank, 182 
111. 367, 55 N, B. 360, affirming 77 111. App. 316; First Nat. Bank 
of Chicago v. Northwestern Nat. Bank, 152 111. 296, 38 N. E. 739. 

(254) 



Ch. 8] FORGKD OR ALTERED PAPER. § 162 

of the payee had been forged before deposit in the bank, 
is liable to the payee for conversion of the checks, though 
it Avas ignorant of the forgery, and acted in good faith.^^ 
Where a bank has collected the amount of a check re- 
ceived on a forged indorsement of the name of the payee, 
to whom the instrument had never been delivered, such 
X^ayee, by a subsequent demand on the bank for the pro- 
ceeds, ratifies the indorsement, and makes the check his 
property to such an extent as to sustain an action by 
him for the proceeds.'- ' The supi'euie court of Tennessee 
says further us to the objection of want of privity: 
"The action against the wrongdoer does uot rest upon 
privity, but upon the fact that he has intermeddled with 
property not his own, and, asserting a hostile claim, he 
lias interfered with the lawful use and dominion of the 
owner of the property."'^ But an indorsement of the 
payee's name is not forged when made by the person 
named and intended to be named as payee, who received 

11 Farmer v. People's Bank, 100 Tenn. 187, 47 S. W. 234; Pickle 
V. Muse, 88 Tenn. 381, 12 S. W. 919; Chism v. First Nat. Bank of 
New York, 96 Tenn. 641, 36 S. W. 387; Talbot v. Bank of Rochester, 
1 Hill (N. Y.) 295; Buckley v. Second Nat. Bank of Jersey City, 
35 N. J. Law, 400; Shaffer v. McKee, 19 Ohio St. 526; Salomon v. 
State Bank, 28 Misc. Rep. 324, 59 N. Y. Supp. 407. 

One whose property has been wrongfully converted is not bound 
to take it back, but may abandon it from the moment of its con- 
version, and sue for its value. Id.; People v. Bank of North Amer- 
ica, 75 N. Y. 564. 

Liability of bank on its indorsement of the paper, see post, § 
164. 

12 Farmer v. People's Bank, 100 Tenn. 187, 47 S. W. 234; Pickle 
V. Muse, 88 Tenn. 381, 12 S. W. 919; Talbot v. Bank of Rochester, 
] Hill (N. Y.) 295; Buckley v. Second Nat. Bank of Jersey City, 35 
N. J. Law, 400. 

13 Farmer v. People's Bank, 100 Tenn. 187, 47 S. W. 234. 

(255) 



§162 BANK COLLECTIONS. [Ch.S 

the paper from the drawer, and was the actual person 
with whom the whole transaction was made, though he 
had fraudulently procured the draft by using as security 
a worthless note and mortgage purporting to have been, 
but not having been, executed by a man and wife having 
the same surname as such payee." The same rule holds 
where the payee had fraudulently represented himself 
to be the owner of land, and had obtained the paper by 
impersonating the real owner, but was, nevertheless, the 
person dealt with and intended as the payee of the pa- 
per.i^ 

In England, the liability of the bank is now governed 
by statute. The English Bills of Exchange Act 1882, 
§ 82, providing that, "where a banker in good faith and 
without negligence receives payment for a customer of a 
cheque crossed generally or specially to himself, and the 
customer has no title or a defective title thereto, the 
banker shall not incur any liability to the true owner of 
the cheque by reason only of having received such pay- 
ment," protects a bank collecting for a customer the 
amount of a crossed cheque, on a forged indorsement 
of the payee's name, though at the time of receiving pay- 
ment, and crediting it to the customer, his account was 
overdrawn and a part of the credit canceled the over- 
draft.18 

1* First Nat. Bank of Ft. Worth, v. American Exchange Nat. Bank, 
49 App. Div. 349, 63 N. Y. Supp. 58. 

15 Emporia Nat. Bank v. Shotwell, 35 Kan. 360, 369; Crippen v. 
Arneriean Nat. Bank of Kansas City, 51 Mo. App. 509, and cases 
cited; Land Title & Trust Co. v. Northwestern Nat. Bank, 196 Pa. 
St. 230, 50 L. R. A. 75, and note collecting cases. 

16 Clarke v. London & County Banking Co., 66 Law J., Q. B. 354. 
(256) 



(:;h. 8J FORGED OR ALTERED PAPER. § 162 

This section of tlie act is applicable, however, only in 
case the bank is dealing with a "customer ;" and a stran- 
ger to the bank, whose only transaction with tlie bank is 
the passage on it of the forged instrument, is not a "cus- 
tomer," within the meaning of the act, and, in such case, 
the collecting bank, if it pays the amount of the paper 
to such stranger, is liable to the true owner for f( inver- 
sion of the funds.^'^ 

The rule applied above, as to the effect of the indorse- 
ment to the collecting bank of paper on which the name 
of the draAver had been forged, applies also where the 
bank receives the paper from one who had indorsed it fol 
lowing a forged indorsement of the payee's name. Thus, 
where plaintiff in good faith took a check on a forged 
indorsement of the payee, ahd indorsed it in blank and 
delivered it to defendant bank for collection, and receiv- 
ed the proceeds from the bank, the latter, on discover- 
ing the forgery and refunding the money to the drawee 
bank, may reimburse itself out of the first moneys of the 
plaintiff that come into its possession, though it had 
not notified plaintiff of the forgery ; since plaintiff guar- 
antied the genuineness of the payee's indorsement, and 
having received the proceeds, was chargeable with no- 
tice of the forgery.^* 

The payee of a check, by suing the bank which collect- 

17 La Cave & Co. v. Credit Lyonnais, 66 Law J., Q. B. 226; Mat- 
thews 'v. Brown & Co., 10 Times Law R. 386, [1894] 63 L. J. 
Q. B. 494; Kleinwort v. Le Comptoir Nationale d'Bscompte de Paris, 
63 Law J., Q. B. 674, [1894] 2 Q. B. Div. 197; Arnold v. Cheque 
Bank, 45 Law J., C. P. 562, 1 C. P. Div. 578. 

18 Green v. Purcell Nat. Bank, 1 Ind. Ter. 270, 37 S. W. 50. See, 
also, Mayer v. City of New York, 63 N. Y. 455, 457; Indig v. Na- 
tional City Bank, 80 N. Y. 100, 105. 

(25Y) 



§ 163 BANK COLLECTIONS. [Ch. 8 

ed and paid over the amount thereof on a forged indorse- 
ment of his name for conversion of the check, afllrms 
and ratifies the payment of the check by the maker.^^ 

§ 163. Diligence in notifying parties to paper. 

The collecting bank must exercise reasonable diligence 
in notifying the holder or party from whom it received 
the paper of the forgery or alteration.^" But the bank 
is under no ol)ligation to give notice of the forgery of 
an indorsement of the payee's name to one who had in- 
dorsed the forged paper in blank to the bank for collec- 
tion, and had received the proceeds.^^ We shall also see 
later that a collecting bank may be required to repay, 
though it had paid the money over to its principal be- 
fore notice of the forgery, Avliere it had not disclosed its 
agency for collection when it received payment.^^ 

In case of an alteration, the bank exercises due dili- 
gence if it notifies the holder personally, on the day it is 
itself notified of the fraud, and also informs him of the 
same fact by letter three days later.^^ 

The English rule is that "the holder of a bill is entitled 
to know, on the day when it becomes due, whether it 

i5> Salomon v. State Bank, 28 Misc. Rep. 324, 59 N. Y. Supp. 407; 
White V. Sweeny, 4 Daly (N. Y.) 223. 

20 Bank of Commerce v. Union Bank, 3 N. Y. 230 ; Oppenheim v. 
West Side Bank, 22 Misc. Rep. 722, 50 N. Y. Supp. 148. 

21 Green v. Purcell Nat. Bank, 1 Ind. Ter. 270, 37 S. W. 50, and 
cases cited; Birmingham Nat. Bank v. Bradley, 103 Ala. 109, 15 
So. 440, and cases cited. See, also, National Bank of North Amer- 
ica V. Bangs, 106 Mass. 441. 

22 See post, § 167. 

23 Oppenheim v. West Side Bank, 22 Misc. Rep. 722, 50 N. Y. 
Supp. 148. 

(2.58) 



Ch. 8] FORGED OR ALTERED PAPER. § 163 

is an honored or dishonored bill," and hence, where a 
forged acceptance is delivered to the acceptor's bank- 
ers on the daj' it is due, and they pay it on that day, but 
discover, on the following day, that it is a forgery, and 
give notice on that day to the holder, it cannot recover 
back the money paid ;^* aliter if notice was given on the 
day when payment was made.^^ 

On the question of the difference between negligence 
in discovering a forgery or alteration and negligence in 
failing to give notice after the discovery, the supreme 
court of Xew York, in a well-considered case, says : "A 
failure to discover, though resulting in a loss to another 
who miglit, if sooner apprised, have apprehended the 
forger, and recovered the money, gives no right of ac- 
tion, and for obvious reasons, one of which alone need 
be mentioned. There is no duty imposed on one who re- 
ceives a forged check from another to unearth the crime. 
He receives it presuming, as he has a right to do, that 
all the signatures and indorsements are genuine, which 
is impliedly warranted by the person from whom it is re- 
ceived. This presumption, and the right to rely on this 
implied warranty, fire only destroyed when, by inspec- 
tion, the forgery could be detected because apparent on 
the face of the check or bill, or where, from the sur- 
rounding circumstances, the suspicions of the persons 
receiving the note, check, or bill should be aroused, and 
his scrutiny challenged. Not so after discovery, for 
then the duty is incumbent on the one detecting the 
imperfection to act promptly in giving notice, and, if 

24 Cocks V. Masterman, 9 Barn. & C. 902. 
■25 Wilkinson v. .Jolmson, 3 Barn. & C. 428. 

(259) 



§ 164 BANK COLLECTIONS. [Ch. 8 

he fails therein to the injury and damage of the one en- 
titled to notice, he will be prevented from recovering 
the damage or injury shown to have been actually in- 
curred." ^^ 

§ 164. Liability of collecting bank on its indorsement of 
forged paper. 

We have already considered the liability of a collect- 
ing bank on its indorsement of genuine paper.^^ If it 
indorses, without qualification or restriction, paper to 
which the signature of the maker or drawer was forged, 
it is liable to a. bona fide holder on its implied warranty 
of the genuineness of the instrument,^* and the genuine- 
ness of the signature of the maker or drawer.^® Under 
the negotiable instruments laws, this is true, though the 
paper had been previously indorsed to the bank re- 
strictively for collection.^" 

The federal courts, however, hold that the general 
indorsement of a collecting bank does not imply a war- 
ranty that a prior indorsement is genuine. The case 
resulting in this decision arose over a pension draft, 
to which the name of the payee had been forged after 
her death. The draft was indorsed "for collection" to 
defendant bank by the initial bank, and, after having 
been indorsed generally by defendant, was paid to it 

26 Third Nat. Bank of New York City v. Merchants' Nat. Bank, 
76 Hun, 475, 27 N. Y. Supp. 1070. 

27 See ante, § 53. 

28 Crosby v. W^rlght, 70 Minn. 251. 

29 Brown v. Ames, 59 Minn. 476; Condon v. Pearce, 43 Md. 83; 
First Nat. Bank of Chicago v. Northwestern Nat. Bank, 40 111. 
App. 640; Turnbull v. Bowyer, 40 N. Y. 456. 

30 See ante, § 53. 

(260) 



Ch. 8] FORGED OR ALTERED PAPER. § 164 

by the United States, and the money remitted to the 
initial bank. It was held that defendant bank was not 
liable to the United States for the amount of the draft ; 
the court stating that, "in such cases, the indorsement 
by the collecting agent, who has no proprietary inter- 
est, does not import any guaranty of the genuineness 
of all prior indorsements, but only of the agent's rela- 
tion to the principal, as stated upon the face of the 
draft; and as this relation is evident upon the draft 
itself, the payor cannot claim to have been misled by 
the indorsement of the agent, or any right to rely on 
that indorsement as a guaranty of the genuineness of 
the payee's indorsement."*^ 

As to the effect of a collecting bank's restrictive in- 
dorsement "for collection," placed on paper to which 
the signature of- the maker or drawer was forged, the 
supreme court of Missouri has rendered an instructive 
decision. Defendant bank cashed and paid full value 
for a forged draft presented to it by the payee, and 
indorsed by him. The payee had been introduced to 
the defendant by a letter from the cashier of another 
bank, showing the payee's genuine signature. When 
the letter was presented, the payee of the draft had also 
deposited in defendant bank a genuine certificate of de- 
posit, issued by the bank that gave the letter, and later 
drew out only a small portion of his deposit. He was 
dressed neatly, and did nothing to cause suspicion. 
The forgery was so well done that the drawer bank at 
first thought the draft to be genuine. It was held that 

31 Ifnited States v. American Exchange Nat. Bank, 70 Fed. 232, 
distinguishing Onondaga County Sav. Bank v. United States, 12 C. 
C. A. 407, 64 Fed. 703. 

(261) 



§ 165 BANK COLLECTIONS. [Oh. 8 

defendant M^as a iona fide purchaser, and, having in- 
dorsed the draft merely "for collection," was not ac- 
countable to the drawee bank which paid it.*^ 

The indorsement of the collecting bank on a forged 
check payable to cash, and not otherwise indorsed, and 
the presentment thereof to the drawee through the 
clearing house, is not equivalent to an indorsement by 
the payee, since not made for the purpose of transfer; 
but is merely equivalent to a presentment by the bank 
in person.^* 

§ 165. Charging back amount of forged or altered paper. 

A collecting bank which has credited the amount of 
a check, but has remitted no money on account thereof, 
may charge back the amount thereof on discovering that 
it had been raised before it was delivered to the bank.^* 
This rule is in harmony with the general rules previ- 
ously considered, as to the right to charge back a credit 
given for worthless paper.^^ 

Where the bank has not been guilty of negligence 
with respect to altered paper, and the holder had no- 
tice of facts putting him on inquiry, the bank will be 
protected. A case in point arose where plaintiff, a 
merchant in Philadelphia, received from a total stran- 
ger, in payment of a bill of goods, a certified check on a 
New York bank, payable to his order for a sum largely 
in excess of the price of the goods bought. Plaintiff, 

32 Northwestern Nat. Bank of Chicago v. Bank of Commerce of 
Kansas City, 107 Mo. 402, 412, 17 S. W. 982, 15 L. R. A. 102. 

ssDedham Nat. Bank v. Everett Nat. Bank (Mass.) 59 N. B. 62. 

34 Birmingham Nat. Bank v. Bradley, 103 Ala. 109, 15 So. 440. 

35 See ante, § 15. 

(262) 



Ch. 8] FORGED OR ALTERED PAPER. § 165 

before accepting the check or paying the dil¥erence to 
the purchaser, took the check to the defendant bank, 
where he had an account, and asked tlie advice of the 
cashier, who advised him, solely because of the suspi- 
cious nature of the transaction, to have nothing to do 
with the checli, though it was apparently good and 
regular. The cashier told plaintilf, however, that he 
could deposit it with the bank for collection in the 
due course of business, and that the bank would for- 
ward it for that purpose, which was done, and credit 
given accordingly. The check was paid by the drawee 
bank, but had been altered, before certification, as to 
the date and the name of the payee, and had been 
raised from $7.75 to |900.00, but the alterations were so 
skillfully made that they could not be detected by ex- 
amination, and were discovered only when the drawer's 
account was balanced at the end of the month. It was 
held that defendant bank was not guilty of negligence, 
and that, on the discovery of the alterations, it was jus- 
tified in refunding to the drawee bank, and charging 
back the amount against the account of the plaintiff.^'^ 

While it may be true that a bank would be estopped 
to claim a right to charge back the amount of raised 
paper, if its cashier had represented to the holder that 
it was good, and the holder had acted on this repre- 
sentation to his injury, the fact that the discount and 
collection teller of the collecting bank stated to the 
holder, after inquiry by him, that the check was "all 
right," at a time when neither party knew of any altera- 
tion, or had any suspicion that the check was raised, 

3« Rapp V. National Security Banlt, 136 Pa. St, 426, 20 Atl. 508. 

(263) 



§ 166 BANK COLLECTIONS. [Ch. 8 

and that the holder, in reliance on the statement, paid 
over money to the one from whom he received the check, 
does not estop the bank, which subsequently discovered 
the alteration, from claiming a right to charge back 
the amount it had credited to the holder in excess of 
the amount of the check before alteration, as the duties 
of such teller relate only to the discount and collection 
of commercial paper, and his statement must conse- 
quently be limited to the fact of its payment by the 
drawee, and cannot be extended to the genuineness of 
the body of the check.^^ 

§ 166. Recovery back of payments made on forged or altered 
paper. 

The general rule is that money paid upon a raised 
check may be recovered back, providing the one seeking 
to recover has not, by his careless or negligent act, in- 
jured or prejudiced the rights of the person from whom 
recovery is sought.^* But since a collecting bank, to 
which the payee of a forged or raised check indorsed the 
same, and from which he received full face value there- 

3T Oppenheim v. West Side Bank, 22 Misc. Rep. 722, 50 N. Y. 
Supp. 148. See, also, Espy v. Bank o( Cincinnati, 18 Wall. (U. S.) 
604; Marine Nat. Bank v'. National City Bank, 59 N. Y. 67; Se- 
curity Bank of New York v. National Bank of Republic, 67 N. Y. 
458. 

•18 National Bank of Commerce v. National Mechanics' Banking 
Ass'n, 55 N. Y. 211; Marine Nat. Bank v. National City Bank, 59 
N. Y. 67, 77; Clews v. Bank of New York National Banking Ass'n, 

89 N. Y. 419; National Park Bank of New York v. Eldred Bank, 

90 Hun, 285, 35 N. Y. Supp. 752; Oppenheim v. West Side Bank, 
22 Misc. Rep. 722, 50 N. Y. Supp. 148. 

(264) 



€h. 8] FORGED OR ALTERED PAPER. § 166 

for, is under no obligation to such payee to discover the 
fraud,^® it may recover back the money so paid.*" 

Where the collecting bank has received money by 
mistake, as under forged or raised paper, and has paid 
it over to its principal before receiving notice of the 
forgery, or other fraud inducing the payment, it can- 
not be comi)elled to repay.*^ The rule is different, how- 
ever, if the bank, as last indorsee of paper on which the 
indorsement of the payee had been forged, received 
payment from the drawee without disclosing its so- 
called agency for collection.''^ If the collecting bank 
has not paid over any money or made an actual remit- 
tance to its principal, but has merely credited to it the 

39 See ante, § 163. 

io Birmingham Nat. Bank v. Bradley, 103 Ala. 109, 15 So. 440; 
Green v. Purcell Nat. Bank, 1 Ind. Ter. 270, 37 S. W. 50. See, also, 
■Carpenter v. Northborough Nat. Bank, 123 Mass. 66; WMte v. Con- 
tinental Nat. Bank, 64 N. Y. 316; Susquehanna Valley Bank v. 
Loomis, 85 N. Y. 207; National Park Bank v. Seaboard Bank, 114 
N. Y. 28, 20 N. E. 632. 

*i National Park Bank v. Seaboard Bank, 114 N. Y. 28, 20 N. E. 
632, 11 Am. St. Rep. 612, distinguishing Metropolitan Nat. Bank v. 
Loyd, 90 N. Y. 530; La Farge v. Kneeland, 7 Cow. (N. Y.) 460; 
Mowatt V. McLelan, 1 Wend. (N. Y.) 173; Herrlck v. Gallagher, 
•60 Barb. (N. Y.) 566; Story, Agency, § 300. In the case first cited 
in this note, there was evidence that the proceeds of the draft 
involved in suit, and also the entire amount that the principal 
bank had to its credit with the collecting bank at the time the 
proceeds of the draft were turned over to the principal, had been 
drawn out at least two weeks before the alteration of the draft 
was discovered, and the court applied the familiar rule as to ap- 
plication of payments, — that where there is no specific direction, 
the payment will be applied to the oldest items (page 35); citing 
Sheppard v. Steele, 43 N. Y. 52; Allen v. Culver, 3 Denio (N. Y.) 
:284; Webb v. Dickenson, 11 Wend. (N. Y.) 63. 

*^ See post, § 167. 

(265) 



§ 166 BANK COLLECTIONS. [Q]^ g: 

amount of the paper, whicli credit has never been drawn 
against, the collecting bank is liable as for money paid 
to it under mistake.^^ 

Bach of several successive indorsers of a bill, who 
have successively paid money thereon by mistake, the 
name of the first indorser having been forged, may re- 
cover from his immediate indorser.** 

An interesting case on the question of the right of 
the drawee bank to recover back money paid to a col- 
lecting bank on forged paper was recently decided by 
the New York court of appeals. The forger first cashed 
a check for |2,400 at the defendant bank by forging 
the name of one of its depositors. He thereafter de- 
posited in plaintiff bank a forged draft on a third bank 
for |6,000, which plaintiff collected, but afterwards re- 
paid to the drawee bank on discovery of the forgery. 
Prior to the discovery of this second forgery, and while 
the |6,000 was still to his credit in plaintiff bank, the 
forger drew out substantially all of that amount, and 
among his drafts on that fund was a check for |2,400 
on plaintiff bank to the order of the person whose name 
he had forged to the check cashed at defendant bank. 

*3 United States Nat. Bank v. National Park Bank, 59 Sun, 495,, 
13 N. y. Supp. 411, affirmed (on the opinion of tlie court below) 
in 129 N. Y. 647, 29 N. E. 1028; Bank of Commerce v. Union Bank,, 
3 N. Y. 236; National Park Bank v. Seaboard Bank, 114 N. Y. 28,. 
20 N. E. 632. 

4i Canal Bank v. Bank of Albany, 1 Hill (N. Y.) 287, 294; Nas- 
sau Bank v. National Bank of Newburgh, 159 N. Y. 456, 54 N. B.. 
66, affirming 32 App. Div. 268, 52 N. Y. Supp. 1118, and 34 App. 
D'iv. 623, 54 N. Y. Supp. 1110; Rapp v. National Security Bank,. 
136 Pa. St. 426, 20 Atl. 508; Green v. Purcell Nat. Bank, 1 Ind.. 
Ter. 270, 37 S. W. 50. 

(266) 



Ch. 8J FORGED OR ALTERED PAPER. § 166- 

This check he deposited In defendant bank to the credit 
of such person, and defendant collected it from plain- 
tiff before it had any knowledge of the forgeries. It 
was held that defendant bank was not liable to plaintiff 
bank for the amount of the |2,400 check on plaintiff.*^ 
In the opinion in this case, the court applies the rule 
that "when money has been received by a person in 
good faith, in the usual course of business, and for a 
valuable consideration, it cannot be pursued into his 
hands by one from whom it has been obtained through 
the fraud of a third person. If it has been used, as 
is claimed in the present case, to pay an indebtedness 
owing by the third person, with innocence in the re- 
cipient, there is a consideration for its payment by him, 
which, despite the fraud through which the money was 
obtained, and for reasons based upon policy and the 
need for such security in ordinary commercial trans- 
actions, supports and protects its possession against the 
world."*" 

On the question whether the deposit by the forger 
of the good check on plaintiff bank in defendant bank 
to the credit of the one from whose account in the latter 
bank he had previously received the same amount on 
a forged check constituted a payment of the claim of 
that bank against him by reason of such forgery, the 
said bank at the time having been ignorant of the 

*5 Nassau Bank v. National Bank of Newburgh, 159 N. Y. 456,, 
54 N. E. 66, affijmlng 32 App. Div. 268, 52 N. Y. Supp. 1118, and 
34 App. Div. 623, 54 N. Y. Supp. 1110. 

46 Citing Justh. v. National Bank of Commonwealth, 56 N. Y. 
478; Stephens v. Brooklyn Board of Education, 79 N. Y. 183; 
Hatch V. Fourth Nat. Bank, 147 N. Y. 184, 41 N. E. 403. 

(267) 



§ 166 BANK COLLECTIONS. [Qh. 8 

forgery, the court says : "Taylor was a debtor, by rea- 
son of his forgeries, as well to those who were injured 
in their property rights thereby, as to the law for his 
criminal act; and it is of no conceivable importance, 
in my opinion, that the existence of the fact of indebt- 
edness was not known at the time when he sought to 
make reparation by repaying the moneys feloniously 
taken. Having made the payment, he could not reclaim 
it, and no interest in the money remained in him. It 
satisfied the claim which the bank undoubtedly possessed 
against him, and the discovery or knowledge of such a 
claim was not necessary to its existence." 

A collecting bank may obligate itself to pay the dif- 
ference between the original amount of a draft and the 
amount as fraudulently altered and raised, by an offer 
to the drawer bank, accepted by it, to pay such differ- 
ence if the draft was returned with an aflldavit of the 
true amount, and the matter not made public, which 
conditions were all complied with by the drawer;*^ 
but an agreement of this kind is rescinded by a direc- 
tion from the drawer to either pay the difference as 
agreed, or return the draft and affidavit, followed by 
a return thereof, together with a refusal to pay.*® 

Where the drawee paid, by mistake, a fraudulently 
raised draft, to a bank holding it for collection, it may 

47 National Bank of Commerce v. Manufacturers' & Traders' 
Bank, 122 N. Y. 367, 25 N. B. 355. 

48 National Bank of Commerce v. Manufacturers' & Traders' Bank, 
122 N. Y. 367, 25 N. E. 355. 

On this state of facts, an action for money had and received 
could not be maintained by the drawer bank against the collect- 
ing bank. Id. 

(268) 



Cll. 8] FORGED OR ALTERED PAPER. § 167 

sue such bank for the overpayment, after a demand 
and a refusal to refund, without tendering back the 
paper itself.*" 

i 167. Bank's agency undisclosed. 

Where the money is received on forged or raised paper 
by a collecting bank ostensibly as owner, without dis- 
closing its true relation to the paper as bailee or so- 
called agent for collection, it is uniformly held account- 
able as for money received by mistake.^" 

Consequently it has been held that a collecting bank, 
which was the last of several indorsers of a draft pay- 
able to order, the first of M'hom was ostensibly the 
payee whose name had been forged, having received pay- 
ment from the drawee on presentment without disclos- 
ing its agency, must repay the amount as money re- 
ceived by mistake on an instrument to which it had no 
title, though it was not notified of the forgery for two 
months after it had turned over the money to its prin- 
cipal.^^ In this case, in answer to the argument that, 
the equities of the parties being equal, the defendants, 
having possession, must prevail, the court states : "No 
doubt the parties were equally innocent in a moral point 

49 Metropolitan Nat. Bank v. Merchants' Nat. Bank, 182 111. 367, 
77 111. App. 316, affirmed. See, also, 'Brewster v. Burnett, 125 
Mass. 68, where it was held that a purchaser of counterfeit United 
States bonds need not return them before suing for the amount 
paid therefor. To same effect is Kent v. Bornstein, 12 Allen 
(Mass.) 342, with regard to the return of a counterfeit bank bill, 

50 See cases cited in notes 51-54, infra. 

51 Canal Bank v. Bank of Albany, 1 Hill (N. Y.) 287. The payee 
of the draft was not disqualified by interest from testifying for 
plaintiffs in such case. Id. 

(269) 



:§ 167 BANK COLLECTIONS. [Ch. 8 

of view. The conduct of both was bona fide, and the 
negligence, or rather misfortune, of both, the same. It 
was the duty, or, more properly, a measure of prudence, 
in each to have inquired into the forgery, which both 
omitted. But this raises no preference at law or in 
equity in favor of the defendants, but against them. 
They have obtained plaintiff's money without considera- 
tion; not as a gift, but under a mistake." 

Proof of a custom of collecting banks not to disclose 
their agency on the paper is not admissible to charge the 
drawee of a forged draft, who paid the same to the 
collecting bank, with notice of the fact that such bank 
was merely an agent, though the agency was not dis- 
closed, in the absence of proof of a further custom of 
banks not to collect paper as principals."^ 

The supreme court of Illinois has recently rendered a 
decision involving the effect of the undisclosed agency 
•of the receiving bank both to collect and clear for the 
initial bank. In that case the indorsements on a raised 
■draft, following an indorsement by the payee, for de- 
posit, to the American Trust & Savings Bank, were as 
follows : "American Trust & Savings Bank. Paid Feb. 
14, 1894. Paid through the Chicago Clearing House to 
Metropolitan National Bank." The first-named bank 
was not a member of the clearing house association, and 
its paper was customarily cleared through the second- 
named bank, but the drawee bank (plaintiff) had paid 
the draft as raised to the Metropolitan (defendant) 
three days before the discovery of the fraud, and there 
was no evidence that prior to such discovery plaintiff 

52 Canal Bank v. Bank of Albany, 1 Hill (N. Y.) 287, 294. 
(270) 



i(]h. 8] FORGED OR ALTERED PAPER. g lf,9 

knew that the defendant was the clearing agent for the 
American, or was its collecting agent. It was held that 
the indorsements passed title to the draft to the defend- 
ant, and did not make it merely agent for collection.^^ 

§ 168. Effect of certification of paper by drawee bank. 

The certification by the drawee bank of a draft merely 
vouches for the genuineness of the signature of the 
drawer, and the existence of sufficient funds of liis at 
the bank to pay the draft. It does not warrant the 
genuineness of the body of the instrument, and, in 
case the draft Avas raised before certification, will not 
prevent the drawee bank from recovering the difference 
between the original and altered amount from a bank 
to which it paid the amount without knowledge of the 
alteration.^* Recovery in such cases is based on the 
double ground of mistake and want of consideration.®^ 

§ 169. Ratification and waiver. 

The acts of the bank may be waived or ratified.®'' 

53 Metropolitan Nat. Bank v. Merchants' Nat. Bank, 182 111. 367, 
:55 N. E. 360, affirming 77 111. App. 316. 

5* Metropolitan Nat. Bank v. Merchants' Nat. Bank, 182 111. 
367, 55 N. B. 360, affirming 77 111. App. 316. 

On effect of certification of check, in general, see Merchants' 
Bank v. State Bank, 10 "Wall. (U. S.) 604, 647. 

As to liability of bank after certification of raised check and sub- 
.sequent statement to a purchaser that the certification was good, 
see Clews v. Bank of New York National Banking Ass'n, 114 N. 
T. 70. 

55 Metropolitan Nat. Bank v. Merchants' Nat. Bank, 182 111. 367, 
.55 N. E. 360, affirming 77 111. App. 316. 

58 As to ratification or adoption of forged signature in general, 
see Greenfield Bank v. Crafts, 4 Allen (Mass.) 447; Wellington, v. 

(271) 



§ 169 BANK COLLECTIONS. [Ch. 8 

Thus, tHe payee of a government check, payable to or- 
der, ratifies the action of a bank in collecting it on a 
forged indorsement of her name, by accepting from the 
wrongdoer in settlement, with full knowledge of the 
facts, a part of the proceeds of the check and a note.^^ 

Jackson, 121 Mass. 157; Howard v. Duncan, 3 Lans. (N. Y.) 174,— 
holding that a ratification may take place, though there was no 
agency or facts creating an estoppel in pais, and no new considera- 
tion. 

Ratification or adoption of a forged signature may take place 
where the proceeds of the instrument are used with knowledge 
of the forgery. Ballston Spa Bank v. Marine Bank, 16 Wis. 120. 

Ratification also takes place if the person whose name was 
forged accepts indemnity or security against the forgery. Pitz- 
patrick v. School Commissioners, 7 Humph. (Tenn.) 224; Jones v. 
Hamlet, 2 Sneed (Tenn.) 256; Bell v. Waudby, 4 Wash. 743. 

Mere silence is not a ratification. California Bank V. Sayre, 
85 Cal. 102; De Land v. Dixon Nat. Bank, 111 111. 323; Walters v. 
Munroe, 17 Md. 150. 

57 Hughes V. Neal Loan & Banking Co., 97 Ga. 383, 23 S. B. 823. 

Ratification by payee of payment by maker on forged indorse- 
ment of former's name, see ante, § 162. 

(272) 



Ch. 9] 



ACTIONS AGAINST BANK. 



CHAPTER IX. 

ACTIONS AGAINST BANK FOR NEGLIGENCE. 

§ 170. Right of action in general. 

171. Surrender of paper as condition precedent to action. 

172. Limitation of action. 

173. Deelaration or complaint. 

174. Answer. 

175. Presumptions and burden of proof. 

176. Admissibility of evidence. 

177. Pleading and proof — Variance. 

178. Matters admissible under general denial. 

179. Verdict and judgment. 

The cause of action for failure to collect is primarily one 
for negligence quasi ex contractu, and not on the contract. 
Consequently the cause of action seems to be unassignable. 

Where the initial collecting bank is held liable for the de- 
faults of its correspondents, the owner's right of action for 
negligence of the correspondent is against the initial bank only, 
which has a remedy over against the correspondent. Where 
the correspondent is held to be the agent of the owner, the 
latter's right of action for its negligence is against it only. 

A tender or surrender of the paper to the bank is not a 
condition precedent to a suit and recovery against it for neg- 
ligence. 

Where the action proceeds as for a breach of the contract 
to collect, the contract should be alleged in the complaint, and 
the relation of the parties shown. The complaint should also 
show damage to plaintiff. The solvency of a party discharged 
by the negligence of the bank is sufficiently stated in an alle- 

(2Y3) 

19 



§ 170 BANK COLLECTIONS. [Ch. 9 

gation that he was in reputable credit, and continued in 
business. 

An answer attempting to negative liability under a custom 
or mode of dealing with plaintiff must show his knowledge of 
the custom, and a continuing agency for him. 

The burden of proof is on plaintiff to show negligence and 
loss. He must show the solvency of parties discharged by the 
negligence of the bank, and the insolvency of the remain- 
ing obligors. 

The holder at the time of suit is presumed to have been the 
holder at maturity of the paper. 

Parol evidence of the contents of a placard claimed to form 
part of the contract is admissible after notice to the bank to 
produce it, and a failure of the bank to do so. The statutes 
of limitations are also admissible to show that the claim had 
become barred by the negligence of the bank. Insolvency of 
the parties may be proved by reputation and lack of property. 

Surplusage and matters not directly in issue need not be 
proved. 

Evidence in mitigation of damages may be shown under a 
general denial. So may evidence of a waiver of the require- 
ments of the law merchant. 

To sustain a judgment for plaintiff for a failure to give 
notice of dishonor, a special verdict must find that notice was 
not given, or facts from which the court can draw that con- 
clusion as a matter of law. 

§ 170. Right of action in general. 

Wlu'it' the depositor of the paper for collection and 
the collectini;- bank are the only parties in any way con- 
cerned in the collection, the right of such depositor to 
sue the hank for negligence in making or failing to 
make the collection is self-evident. But the cause of 
action is for negligence or tort, quasi c.r contractu, and 
(274) 



Ch. 9] ACTIONS AGAINST BANK. ^ § l7o 

is not oil contract.^ For this reason, it is doubtful 
whetlier a cause of. action for negligence in not taking 
the steps necessary to charge an indorser is assignable.^ 
But, admitting the assignability of such a cause of ac- 
tion, an assignment of it is not effected by an assign- 
ment of the indorsed instrument, together with tlie 
mortgage securing it.^ 

The action is usually brought bv some party to the 
paper, but one in possession of a promissory note in- 
dorsed in blank by the payee thereof may sue the col- 
lecting l)ank for failure to protest in due time and give 
notice to the indorsers, though his name is not on the 
note, and defendant received it from its correspondent 
with a special indorsement for collection.* 

In those jurisdictions holding the initial bank liable 
for the defaults of its correspondents, the owner's right 
of action for negligence of the correspondent is against 

1 Merchants' Bank of Baltimore v. Bank of Commerce, 24 Md. 
12, 52; Bank of Utlca v. McKlnster, 11 Wend. (N. Y.) 473; Borup 
T. Nlninger, infra. 

Holder may sue bank before suing indorser, see ante, § 72. 

2 Borup V. Nininger, 5 Minn. 523, 539 (Gil. 417, 433), citing Gard- 
ner V. Adams, 12 Wend. (N. Y.) 2fl7; People v. Tioga Common 
Pleas, 19 Wend. (N. Y.) 73; People v. Gibbs, 9 Wend. (N. Y.) 29; 
North V. Turner, 9 Serg. & R. (Pa.) 244; O'Donnel v. Seybert, 13 
Serg. & R. (Pa.) 54. 

In Bank of Utica v. McKinster, 11 Wend. (N. Y.) 473, it is held 
that where a note was transferred by a debtor, as collateral, un- 
der an agreement for a return thereof to the debtor in case of its 
nonpayment, and was thereafter deposited by the pledgee in a 
hank for collection, the debtor and not the pledgee was the proper 
party to sue the bank for negligence in failing to give notice of 
nonpayment 

3 Borup V. Nininger, 5 Minn. 523 (Gil. 417, 433). 

4 Cotton V. Union Bank, 15 La. 369. 

(275) 



§ 171 . BANK COIX-BCTIONS. [Ch. 9 

the initial bank only.^ In such case, as we have seen, 
the initial bank has a remedy by action over against 
the correspondent.® In the jurisdictions holding that 
the correspondent is an agent of the owner, and not of 
the initial bank, the owner's cause of action for negli- 
gence 'of the correspondent is against the correspondent 
only.''' 

§ 171. Surrender of paper as condition precedent to action. 

Tender back of the paper is not a condition precedent 
to a recovery against a bank sued for negligence in fail- 
ing to correct it.* Nor is the return of the draft to the 
defendant bank a condition precedent to an action 
against it by the drawer, who paid the draft by mistake 
in ignorance of the fact that defendant had been negli- 
gent in failing to collect from the drawee; such action 
being for negligence, and not on the draft.^ 

In a Louisiana case, however, it was ordered that 

= See ante, §§ 86-98. 

6 See ante, § 120. 

^ See ante, §§ 99-115. See, also. First Nat. Bank of Crown Point 
V. First Nat. Bank of Riclimond, 76 Ind. 561; Guelieh v. National 
State Bank of Burlington, 56 Iowa, 434. 

A dictum of Nelson, C. J., in Bank of Orleans v. Smith, 3 Hill 
(N. Y.) 560, is to the effect that the owner may sue either the 
Initial bank or its correspondent for the negligence of the latter 
in making the collection. 

Liability of correspondent bank to owner for proceeds, see ante, 
§§ 136, 137. 

8 First Nat. Bank of Meadville v. Fourth Nat. Bank of New York 
City, 89 N. Y. 413. 

Necessity of tender of forged or altered paper to bank before 
suit to recover payment made, see ante, § 166. 

s> Merchants' Bank of Baltimore v. Bank of Commerce, 24 Md. 
12, 52. 
(2T6) 



Oh. 9] ACTIONS AGAINST BANK. § 172 

execution be not issued on a judgment against the bank 
till plaintiff had delivered the note to it or deposited it 
with the clerk, together with an assignment of all rights 
thereon.^" 

§ 172. limitation of action. 

There is a dearth of authorities on the question of 
limitations with respect to actions against banks for 
negligence in collecting; but, since such actions are 
technically in tort, quasi ex contractu, the statute be- 
gins to run from the time of the default, and its running 
is not postponed until actual damage occurs." 

There are a few other authorities that may be of 
service by way of analogy. Thus, as to actions against 
collection agencies for the negligence or misconduct of 
their collecting attorney, the statute of limitations be- 
gins to run from the time the attorney received the pro- 
ceeds of the paper.i^ If, however, the attorney was 
guilty of fraud, as where he fraudulently executed a 
satisfaction of judgment on the claim, and the collec- 
tion agency, in response to frequent inquiries of the 
owner, reported that the claim was uncollectible, the 
statute does not begin to run until the discovery of the 
fraud.^^ 

10 Pritcliarcl v. Louisiana State Bank, 2 La. 415. 

11 Angell, Limitations, p. 123 ; Wood, Limitation of Actions, p. 
362; Bank of Utica v. Childs, 6 Cow. (N. Y.) 238. In this case the 
action was by the collecting bank against its notary, for whose 
default the bank had been compelled to respond to the owner of 
the paper. See, also. Miller v. Adams, 16 Mass. 456. 

That statutes of limitation are admissible in evidence to show 
that claim was lost through negligence of the bank, see post, § 176. 

12 Rhlnes' Adm'rs v. Evans, 66 Pa. St. 195. 

13 Morgan v. Tener, 83 Pa. St. 305. 

(2Y7) 



§ 173 BANK COLLECTIONS. |Ch. 9 

If the negligence of the bank was such as to charge 
it with conversion of the paper or proceeds, the statute 
would begin to run from the time of the conversion." 

§ 173. Declaration or complaint. 

Where the action proceeds on the theory of a breach 
of a contract to collect, the declaration or complaint 
must state the contract. 

An averment that plaintiff had retained and em- 
ployed defendant to collect a draft for a commission 
and reward to be paid to defendant, followed by an 
averment of defendant's acceptance of the draft for pur- 
poses of collection, in pursuance of such retainer and 
employment, is a sufficient statement of the contract 
to collect." 

The so-called relation of principal and agent is also 
sufficiently shown in a complaint stating that plaintiff 
delivered a draft to a collection agency, procured its 
indorsement, and "caused said draft so indorsed to be 
sent by mail, together with a statement" of the account 
of the firm on which it was drawn, to the defendant bank 

14 See Parker v. Harden, 121 N. C. 57, 28 S. E. 20; Fishwick's 
Adm'r v. Sewell, 4 Har. & J. (Md.) 393; Quinn v. Gross, 24 Or. 
147. 

That an action by a receiver of a bank for proceeds of collec- 
tions of paper sent to a trust company is an action for conversion 
within the California statutes of limitation, see Hawkins v. State 
Loan & Trust Co., 79 Fed. 50. 

But if possession was obtained lawfully, a demand is necessary 
before an action for conversion, and the statute runs from the 
time of the demand. See Haire v. Miller, 49 Kan. 270, 30 Pac. 
482; Montague v. Sandwich, 7 Mod. 99. 

15 American Express Co. v. Pinckney, 29 111. 392, 407. 
(278) 



Ch. 9] ACTIONS AGAINST BANK. § 173 

for collection.^ '^ And a declaration in an action against 
a bank for failure to protest a note, which alleges that 
it was delivered to defendant for collection before its 
maturity, is sufficient as to the time of the inception 
of the relation.i^ 

When there was a stipulated consideration for the 
contract to collect, it should be stated ; but where there 
was no express contract as to the compensation of the 
bank, the implied consideration need not be stated.^* 
But, assuming that it is necessary to set out the implied 
agreement as to consideration, it has been held that a 
complaint, defective for want of allegations of an im- 
plied contract on the part of the bank to follow in- 
structions, and on the part of the owner to pay a rea- 
sonable compensation, is amendable.^ ^ 

The complaint must show damage to plaintilS.^" So, 
a petition in a suit for failure to collect, which does not 
allege that the defendant could have collected the amount 
of the paper at any time after it received it for collec- 
tion, or that an alleged negligent surrender of the paper 
to the payor prevented collection, or that the payor re- 
fused to redeliver the paper, or that the alleged negli- 
gence caused plaintiff to lose his claim against the 

16 Finch V. Karste, 97 Mick. 20, 56 N. W. 123. 

IT Roanoke Nat. Bank v. Hambrick, 82 Va. 135. 

18 Matters implied by law need not be alleged or proved, see 
post, § 177. 

A complaint in tort against a collecting bank for wrongful con- 
version of a note need not allege a consideration for the under- 
taking to collect. Keyes v. Bank of Hardin, 52 Mo. App. 323, 330. 

18 Central Georgia Bank v. Cleveland Nat. Bank, 59 Ga. 667, 674. 

20 Morris v. Enfaula Nat. Bank, 106 Ala. 383, 18 So. 11. 

(279) 



§ 174 BANK COLLECTIONS. [Ch. 9 

payor, is defective.^^ But a declaration alleging a neg- 
ligent retention of a draft, without efforts to collect, 
until after the drawee became insolvent, so that it was 
impossible to collect the claim, sufficiently shows that 
defendant's default caused loss to plaintiff .^^ 

That the drawer of the paper was solvent up to a 
certain time is sufficiently stated in a complaint alleg- 
ing that, up to that time, he remained in reputable, 
credit and continued in business.^^ Further, ' on the 
question of solvency, it has been held that the complaint 
in an action for failing to collect before the drawee 
became insolvent need not negative any knowledge on 
the part of plaintiff that the drawee was in failing cir- 
cumstances.^* 

§ 174. Answer. 

An answer attempting to negative liability under a 
custom or mode of dealing with plaintiff must show 
plaintiff's knowledge of the custom, or a general con- 
tinuing agency. So, an answer averring a custom of 
plaintiff to send to defendant for collection, at intervals, 
drafts on a certain company, and a custom of defendant 
not to present any of such drafts for acceptance, but 
not averring that plaintiff knew of the custom not to 
present them for acceptance (all such drafts prior to 
the one in suit having been paid without such present- 

21 Farmers' Bank & Trust Co. v. Newland, 97 Ky. 464, 31 S. 
W. 38. 

22 Pinch V. Karste, 97 Mich. 20, 56 N. W. 123. 

23 Citizens' IN at. Bank of Lawrenceburg v. Third Nat. Bank of 
Greensburg, 19 Ind. App. 69, 49 N. B. 171, distinguishing West v. 
Saint Paul Nat. Bank, 54 Minn. 466, 56 N. W. 54. 

24 Finch V. Karste, 97 Mich. 20, 56 N. W. 123. 

(280) 



•Ch. 9] ACTIONS AGAINST BANK. § 175 

ment), and not averring an express agreement in regard 
to such drafts, or that plaintiff constituted defendant 
its continuing agent for tlieir collection, does not shoAv 
a continuing agency, but that such item constituted a 
separate transaction, and that, consequently, defend- 
ant's custom not to present for acceptance was not 
binding on plaintiff.^^ 

§ 175. Presumptions and burden of proof. 

To charge a bank with liability for negligence in col- 
lecting or failing to collect paper, the owner has the 
burden of proof, and must show that the paper was col- 
lectible, and that the loss of it was due to the bank's neg- 
ligence.^^ And, to hold the collecting bank liable for 
negligence, some actual loss by reason thereof must be 
shown.^^ Thus, no damages can be recovered for the 

25 Citizens' Nat. Bank of Lawrenceburg v. Third Nat. Bank of 
•Greensturg, 19 Ind. App. 69, 49 N. B. 171. 

Answer in suit to charge collecting bank with negligence in 
failing to present a sight draft for acceptance held not to show 
that the drawer had no right to draw. Citizens' Nat. Bank of 
Lawrenceburg v. Third Nat. Bank of Greensburg, 19 Ind. App. 69, 
49 N. E. 171. 

26 Sahlien v. Bank of Lonoke, 90 Tenn. 221, 232, 16 S. W. 373. 
Where part of a claim sent to an attorney for collection has 

"been collected, the principal, in order to charge the attorney with 
the remainder, must show that such remainder was collectible. 
Bruce v. Baxter, 7 Lea (Tenn.) 477, 482. 

Presumptions as to title to paper, see ante, § 14. 

Presumption of negligence from loss of paper, see ante, § 39. 

Presumption that indorser will take advantage of his discharge 
from liability, see ante, § 72. 

2THallowell v. Curry, 41 Pa. St. 322; Finch v. Karste, 97 Mich. 
-20, 56 N. W. 123; Farmers' Bank & Trust Co. v. Newland, 97 Ky. 
-464, 474, 31 S. W. 38; Indig v. National City Bank of Brooklyn, 

(281) 



§ 175 BANK COLLECTIONS. [Cii, 9, 

alleged negligence of a bank in failing to realize on a 
draft after acceptance, and before the insolvency of the 
drawee, if the evidence fails to show a reasonable prob- 
ability that the draft would have been paid if the 
drawee had been pressed for payment during such 
time.^® For the same reason, one suing a bank for neg- 
ligence in failing to take steps to charge an indorser- 
must show the solvency of the indorser and the in- 
solvency of the maker.2® 

A little broader statement of the rule is that, before 
the owner can recover the face of the paper from a 
bank whose negligence has caused the discharge of one 
solvent party to the paper, he must show that the re- 
maining parties are insolvent.^" In Louisiana, how- 
ever, the rule is different.^^ And in Mississippi it has- 
been held that, in the absence of any showing whatever 
as to the solvency of the drawers in an action for neg- 
ligence in failing to charge them, they will be presumed 
to be solvent.^^ 

But the burden of proof as to an actual loss to plain- 
so N. Y. 100, 104; Givan v. Bank of Alexandria (Tenn. Ch.) 52 S. 
W. 923; Bruce v. Baxter, 7 Lea (Tenn.) 477; Collier v. PuUiam, 
13 Lea (Tenn.) 114, 118; Toole v. Durand, 7 Rob. (La.) 363, 368. 

28 Crouse v. First Nat. Bank of Penn Yan, 137 N. Y. 383, 33 N.- 
E. 301, affirming 61 Hun, 618, 15 N. Y. Supp. 408. 

aoBorup v. Nininger, 5 Minn. 523 (Gil. 417). 

But see Coghlan v. Dinsmore, 22 N. Y. Super. Ct. 453, where it 
was held that a bank sued for not taking the necessary steps to 
charge indorsers has the burden of showing that they are insolvent. 

30 Bank of Mobile v. Huggins, 3 Ala. 206. 

31 Durnford v. Patterson, 7 Mart. (La.) 460; Crawford v. Louisi- 
ana State Bank, 1 Mart. (La.; N. S.) 214; Montillet v. Bank of: 
United States, 1 Mart. (La.; N. S.) 365. 

32 Capital State Bank v. Lane, 52 Miss. 677, 681. 

(282) 



Ch. 9] ACTIONS AGAINST BANK. § 175 

tiff is sustained by evidence of the obligor's insolvency 
after he had given a mortgage on his property to de- 
fendant bank to secure its own claini against him, and 
evidence of the return of plaintiff's claim unpaid; no 
evidence having been adduced by defendant to show that 
the claim was still collectible.^^ 

The holder of a bill at the time of a suit by him against 
the collecting bank for negligence in making present- 
ment and protest without allowing grace is presumed to 
have been the holder at the maturity of the paper.^* 

i 176. Admissibility of evidence. 

The decisions available on the questions relating to 
the admissibility of evidence in actions against collect- 
ing banks for negligence are based for the most part 
on some particular state of facts involved in each case.^* 
Thus, it has been held that parol evidence of the con- 
tents of a placard posted in the bank offering to make 
collections on stated terms is admissible after notice 
to the bank to produce it, and the failure of the bank 
to do so, without evidence that plaintiff saw the placard 
and relied on it.^" Also, that letters written by plain- 
tiff to the obligors on the paper after it had been re- 
turned to plaintiff' by the bank are admissible to show 
diligence on the part of plaintiff'.^'^ 

33Fincli V. Karste, 97 Mich. 20, 56 N. "W. 123. 
3* Georgia Nat. Bank v. Henderson, 46 Ga. 487, 12 Am. Rep. 590. 
35 Proof of custom, see ante, § 10. 

Matters admissible under general denial, see post, § 178. 
seWingate v. Mechanics' Banli, 10 Pa. St. 104, 107. 
31' Diamond Mill Co. v. Groesbeeck Nat. Bank, 9 Tex. Civ. App. 
31, 29 S. W. 169. 

(283) 



§ 177 BANK COLLECTIONS. [Ch. 9 

In an action against the initial bank, which had 
agreed to "collect," for negligence of its correspondent 
in another state in failing to collect or give notice 
of dishonor or return the paper, the statutes of that 
state are admissible in evidence to show that the bank 
held the note until action thereon was barred by the 
statute of limitations.^^ 

That one is insolvent may be proved by evidence that 
such was his general reputation in the community where 
he resides ;^^ and an execution against the maker, and 
a return of nulla honxv and a certificate of the parish 
recorder that the maker had no property standing in 
his name in the parish of his domicile, are admissible to 
show insolvency of the maker.*" 

§ 177. Pleading and proof — Variance. 

An allegation that, when the paper was delivered to 
the bank for collection, the owner instructed the bank 
to take all necessary steps to hold the indorsers in case 
of nonpayment, is surplusage, and need not be proved, 
since it states merely what the law implies in the ab- 
sence of express instructions.*^ Nor is it necessary to 
prove matters not directly- in issue. Thus, in a suit to 
recover from a bank the cost of substituting new trans- 
fers of land certificates for transfers negligently lost by 

3s Wingate v. Mechanics' Bank, 10 Pa. St. 104. 

39 West V. St. Paul Nat. Bank, 54 Minn. 466, 56 N. W. 54; Ninin- 
ger V. Knox, 8 Minn. 140 (Gil. 110); Burr v. Willson, 22 Minn. 211; 
Angell V. Rosenburg, 12 Mich. 241, 251; Bank of Middlebury v. 
Town of Rutland, 33 Vt. 414 ; State v. Cochran, 2 D'ev. (N. C.) 63. 

*" Eichelberger v. Pike, 22 La. Ann. 142. 

*i Jagger v. National German-American Bank, 53 Minn. 386, 55 
N. W. 545. 
(284) 



Ch. 9] ACTIONS AGAINST BANK. § 178 

the bank after their delivery to it to collect the amount 
for which they were given as collateral, plaintiff need 
not prove the execution of the transfers, that not being 
in issue.*^ But, in an action against a bank for fail- 
ing to notify an indorser, where the fact of notice to the 
bank of the residence of the indorser was in issue, evi- 
dence, of special instructions given to the bank at the 
time the paper was left for collection, as to the resi- 
dence of the indorser, was admissible.^* 

§ 178. Matters admissible under general denial. 

Evidence in mitigation of damages is admissible un- 
der a general denial.'** So, too, a bank sued for negli- 
gence in not presenting a sight draft for acceptance 
may show, under a general denial, that the require- 
ments of the law merchant in such case had been dis- 
pensed with by special agreement; the complaint hav- 
ing alleged an agreement to collect and to promptly 
present for acceptance, as required by the rules of the 
law merchant and the custom of banks.*^ But a de- 
fense to a suit by the holder for failure to protest and 
give notice, that defendant received the paper from its 
correspondent under special indorsement without no- 
tice of any title in plaintiff (whose name was not on 
the paper), and that the correspondent was largely in- 

42 First Nat. Bank of Birmingham v. First Nat. Bank of New- 
port,' 116 Ala. 520, 22 So. 976. 

*3 Nininger v. Knox, 8 Minn. 140 (Gil. 110) . 

a Citizens' Nat. Bank of Lawrenceburg v. Third Nat. Bank of 
Greensburg, 19 Ind. App. 69, 49 N. E. 171. 

45 Citizens' Nat. Bank of Lawrenceburg v. Third Nat. Bank of 
Greensburg, 19 Ind. App. 69, 49 N. B. 171. 

(285) 



§ 179 BANK COLLECTIONS. [Ch. 9 

debted to defendant, is not available unless specially 
pleaded. It cannot be shown under a general denial.*" 

§ 179. Verdict and judgment. 

Tn an action against a bank for negligence consisting 
principally of a failure to give proper notice of nonpay- 
ment, a special verdict which does not find that notice 
was or was not given, or any facts from which the court 
could pass upon it as a question of law, will not sustain 
a judgment for plaintiff.*^ 

40 Cotton V. Union Bank, 15 La. 369. 

17 Locke V. Merchants' Nat. Bank, 66 Ind. 353, 364. See, also. 
Gazette Printing Co. v. Morss, 60 Ind. 153. 
(286) 



€h. 10] MEASURE OF DAMAGES. 



CHAPTER X. 

MEASURE OP DAMAGES. 

§ 180. Compensatory damages in general. 

181. Nominal damages. 

182. Face value of paper. 

183. For failure to charge indorsers. 

184. Costs of unsuccessful suits against indorsers. 

185. For conversion. 

186. Recovery of interest. 

187. Matters that may he shown in mitigation of damages. 

The measure of damages for negligence of the collecting bank 
is the actual loss occasioned by its default. This rule applies 
as well between the initial and correspondent banks, as be- 
tween the former bank and the owner. It also applies where 
the paper itself was lost by the collecting bank. 

In some cases, nominal damages are allowed for negligence 
resulting in the discharge of some of the parties to the paper, 
if proper steps had been taken as to remaining solvent parties. 

The right to recover the full face value of the paper depends 
on the reasonable probability of collection had due diligence 
been used. The bank may be charged with the full value of 
the paper where its negligence resulted in the discharge of 
the drawer, or of the drawee. The full face value of the paper 
is also the measure of damages where the bank had secured, 
or fraudulently obtained payment of, its own claim against 
the obligor, to the exclusion of the rights of its customer, the 
owner of the paper. 

For a negligent failure to properly charge the indorsers, the 
bank is liable, prima facie, for the full value of the paper, 

(28T) 



§ 180 BANK COLLECTIONS. [Ch. 10' 

if the remaining parties are insolvent. And a remote and 
contingent possibility of recovery against parties not discharged 
will not prevent a recovery of the full value of the paper. 

The costs of unsuccessful suits against indorsers discharged 
by the negligence of the bank do not form a proper element of 
damage, and are not recoverable. 

If the acts of the bank amount to a conversion, the measure 
of damages is the full value of the paper. 

Interest cannot be recovered unless some pecuniary benefit 
has, or could have, accrued to the bank from the possession of 
the paper or its proceeds. 

The bank may show, in mitigation of damages, the solvency 
of the maker, the insolvency of the indorser discharged by its 
negligence, or any other fact that will lessen the actual loss 
, to the owner. 

§ 180. Compensatory damages in general. 

The collecting bank is liable only for the actual loss 
occasioned by its negligence. In other words, it can be 
required to pay indemnity, and no more, for the loss 
caused by its fault.^ So, where the correspondent bank, 
which was ordered to return a draft if unpaid, gave 
the initial bank erroneous information that the draft 
had been paid, whereupon the latter paid the amount, 
less certain charges, to the drawer, the measure of dam- 
ages in an action by the initial bank against its corre- 

iBank of Mobile v. Huggins, 3 Ala. 206; First Nat. Bank of 
Meadville v. Fourth Nat. Bank of New York City, 77 N. Y. 320, 
89 N. Y. 412; Borup v. Nininger, 5 Minn. 523 (Gil. 417); American 
Express Co. v. Parsons, 44 111. 312; Mott v. Havana Nat. Bank, 
22 Hun, 354; Omaha Nat. Bank v. Kiper (Neh.) 82 N. W. 102; 
Givan v. Bank of Alexandria (Tenn. Ch.) 52 S. W. 923. 

(288) 



Ch. 10] MEASURE OF DAMAGES. § 181 

spondent is the amount so paid out by it ; that amount 
of loss having been shown.^ 

On the same theory of compensatory damages, a bank 
which negligently lost transfers of land certificates, sent 
to it for collection, by one holding them as collateral, 
is chargeable, as an element of damages, with the neces- 
sary costs and expenses of suits to establish such trans- 
fers, not exceeding their value as security, though the 
sender could have avoided such expenses if he had re- 
corded his transfers, as the failure to record in no way 
contributed to the loss of the transfers; and is also 
chargeable with all expenses of procuring substitutes, 
including all necessary traveling expenses and attor- 
neys' fees; but is not chargeable with the expense of 
foreclosing a mortgage given to secure the same debt 
by the original debtor after re-establishment of the 
transfers.^ 

§ 181. Nominal damages. 

In some cases where the bank has been guilty of a 
technical breach of duty, but no injury has resulted, 
merely nominal damages are allowed. No more than 
nominal damages can be recovered by the payee of a 
draft from the collecting bank for its failure to present 
for payment a check given in payment of the draft, un- 
less it be shown that the drawer of the draft, against 
whom a remedy had been preserved by the bank, is in- 

2 Merchants' & Manufacturers' Bank v. Stafford Nat. Bank, 44 
Conn. 564. 

3 First Nat. Bank of Birmingham v. First Nat. Bank of New- 
port, 116 Ala. 520, 22 So. 976. 

(289) 

20 



§ 182 BANK COLLECTIONS. [(Jh. JQ 

solvent.* And the sending bank is entitled to nominal 
damages only, for negligence of the correspondent bank 
in sending the paper directly to the bank primarily 
liable, where the agency had been renounced, and the 
plaintiff had acquiesced in the renunciation.^ 

§ 182. Face value of paper. 

The right to recover the full amount of the paper 
from the bank on the ground of negligence in failing to 
collect depends on the reasonable probability of collec- 
tion had diligence been used in pursuing the obligor 
or notifying the owner of the paper,^ and is consequently 
a question of fact for the jury.'^ 

If there is a reasonable probability that the debt 
would have been collected but for the negligence of the 
collecting bank, the measure of damages is the amount 
of the claim.® 

The bank may be charged with the face value of the 

* First Nat. Bank of Meadville v. Fourth. Nat. Bank of New York 
City, 77 N. Y. 320, 33 Am. Rep. 618, 89 N. Y. 412. Aliter if the 
drawer was discharged by the negligence of the bank. See next 
section. 

i; First Nat. Bank of Evansville v. Fourth Nat. Bank of Louis- 
ville, 56 Fed. 967, 6 C. C. A. 183, 16 U. S. App. 1. 

6 Selz V. Collins, 55 Mo. App. 55 ; Fahy v. Fargo, 63 Hun, 625, 17 
N. Y. Supp. 344; Leinau v. Dinsmore, 41 How. Pr. (N. Y.) 97; 
Falling v. Fargo, 12 Wkly. Dig. (N. Y.) 121. 

7 Selz v., Collins, 55 Mo. App. 55. See, also, Dyas v. Hanson, 
14 Mo. App. 363; First Nat. Bank of Trinidad v. First Nat. Bank of 
Denver, 4 Dill. 290, Fed. Cas. No. 4,810. 

8 Omaha Nat. Bank v. Kiper <Neb.) 82 N. W. 102; First Nat. 
Bank of Meadville v. Fourth Nat. Bank of New York City, 77 N. 
Y. 328; Dern v. Kellogg, 54 Neb. 560, 74 N. W. 844. 

(290) 



•Ch. 10] MEASURE OP DAMAGES. § 182 

paper, where its negligence resulted in a loss of all 
remedies against the drawer. Thus, on a showing that 
it had been adjudged, in an action in another state 
against the drawer, that he was discharged from liabil- 
ity on the draft by the banlv's failure to duly present 
his check given in payment thereof, the measure of 
damages is the full amount of the draft.^ 

The rule is the same as to negligence resulting in the 
discharge of the drawee, and a failure to present a sight 
draft for payment within a reasonable time, whereby 
remedy is lost against the drawee, renders the banlc 
liable for the face Talue of the draft." And a finding 
that the drawee had real and personal property more 
than sufficient to meet the draft at and after maturity 
raises a presumption that, if the bank had used due dili- 
gence, and promptly returned the draft on nonpay- 
ment, the owner could have collected the whole amount 
from the drawee by the ordinary modes of judicial 
procedure.^ ^ 

The measure of damages for failing to demand pay- 
ment of the acceptor, who afterwards stopped payment 
and became insolvent, and for want of ordinary dili- 
gence in securing the liability of the other parties to 
the paper, is the amount of the paper. ^ - 

Where the collecting bank fraudulently obtains pay- 
s' First Nat. Bank of Meadville v. Pourtli Nat. Bank of New York 
■City, 89 N. Y. 413. 

11 fcrray's Harbor Commercial Co. v. Continental Nat. Bank, 74 
Mo. App. 633. 

11 Pahy V. Pargo, 63 Hun, 625, 17 N. Y. Supp. 344. 

12 Armington's Bx'r v. Gas Light & Banking Co., 15 La. 414. 

(291) 



§ 183 BANK COLLECTIONS. [Oh. 10 

ment of, or secures, a claim of its own against the 
obligor on the paper, thereby preventing the owner of 
the paper from realizing anything thereon, the measure 
of the damages recoverable by the owner is the full 
face value of the paper.^* 

An aggravated case of this nature arose in North 
Carolina, and it was held that the measure of damages 
for failing to present a check or take any measures to 
collect it for four days after its receipt, the maker hav- 
ing been embarrassed during such time, within the 
knowledge of the bank, which, during such time, had 
taken measures to secure its own claims against the 
drawer, is the full amount of the check.^* Decisions of 
this kind ought to make a lasting impression on banks 
tempted to overreach their customers in the manner 
above indicated. 

§ 183. For failure to charge indorsers. 

The measure of damages for a failure of the collect- 
ing bank to duly and properly protest the paper and 
give notice of dishonor, thereby discharging solvent in- 
dorsers, is, prima facie, the face value of the paper if 
the maker or drawer is insolvent.^ ^ 

13 Commercial Bank v. Red River Valley Nat. Bank, 8 N. D. 
382, 79 N. W. 859; Dern v. Kellogg, 54 Neb. 560, 74 N. W. 844. 

Riglit of bank to secure its own claim against the common 
debtor, see ante, § 50. 

14 Bank of New Hanover v. Kenan, 76 N. C. 340, 346. The check 
having been drawn on, and payable at, the bank in this case, the 
conduct of the bank amounted to an acceptance of the check. Id. 
346. 

16 Merchants' State Bank v. State Bank of Phillips, 94 Wis. 444, 
(292) 



Ch. 10] MEASURE OP DAMAGES. § 184 

A remote and contingent possibility of recovery 
against parties not discharged by the negligence of the 
bank will not prevent a recovery of the face value of 
the paper. Thus, where the maker died insolvent, at 
maturity of a note left with defendant bank for col- 
lection, the measure of damages for negligence in fail- 
ing to present the note or make demand at the late resi- 
dence of the maker, whereby the sole solvent indorser 
on the note was discharged, was held to be the full 
amount of the paper, though there was a possibility of 
creditors obtaining a small percentage of their claims 
out of the insolvent estate.^® 

So, also, where two out of four indorsers of a note 
were discharged by the negligence of the collecting bank 
in failing to give proper notices of protest, and the third 
had removed from the state, and it was doubtful if a 
recovery could be had against the fourth by reason of 
a defect in the notarial certificate of protest, the owner 
of the note is entitled to judgment for the face of the 
paper .^'^ 

§ 184. Costs of unsuccessful suits against indorsers. 

In New York, the rule as to the right to recover the 
costs of suit against the indorsers is that, where the col- 
lecting bank, sued for negligence in not taking proper 

69 N. W. 170; Borup v. Nininger, 5 Minn. 523 (Gil. 417); Chap- 
man V. McCrea, 63 Ind. 360; American Express Co. v. Haire, 21 
Ind. 4; Montgomery County Bank v. Albany City Bank, 7 N. Y. 
459; Downer v. Madison County Bank, 6 Hill (N. Y.) 648. 
Wliat may be sliown in mitigation of damages, see post, § 187. 

16 Huff V. Hatch, 2 Disn. (Ohio) 63. 

17 Pritchard v. Louisiana State Bank, 2 La. 415. 

(293) 



§ 186 BANK COLLECTIONS. [Ch. 10 

steps to charge the indorsers, did not guaranty the col- 
lectibility! of the paper, or in any way induce the owners 
to bring suits, which proved unsuccessful, against the 
indorsers, the bank is not liable for the costs of such 
suits.^* Another New York decision is to the same ef- 
fect, the court stating that since the suits against in-- 
dorsers have a very remote, if any, connection with the 
breach of the bank's undertaking, the bank ought not 
to be answerable for the costs and expenses incurred 
therein.^^ 

In Louisiana, however, the rule is different, and the 
costs of unsuccessful suits against indorsers are a proper 
element of damage.^" 

§ 185. For conversion. 

The measure of damages for an actual conversion of 
the paper by the collecting bank is the face value of the 
paper,^^ or, raore strictly speaking, the amount due on 
the instrument.^^ 

§ 186. Recovery of interest. 

The rule as to interest is that it is not allowable in 
an action against a collecting bank for negligence, where 

18 Ayrault v. Pacific Bank, 1 Abb. Pr. (N. S.) 38, affirmed in 47 
N. Y. 570. 

"Downer v. Madison County Bank, 6 Hill (N. Y.) 648. 

20 Pritchard v. Louisiana State Bank, 2 La. 415. 

21 American Express Co. v. Parsons, 44 111. 312. 

22 Salomon v. State Bank, 28 Misc. Rep. 324, 59 N. Y. Supp. 407; 
People V. Bank of North America, 75 N. Y. 547; Robinson v. Chemi- 
cal Nat. Bank, 86 N. Y. 404; Talbot v. Bank of Rochester, 1 Hill 
(N. Y.) 295; Hynes v. Patterson, 95 N. Y. 1. 

(294) 



Oh. 10] MEASURE OP DAMAGES. ' § 187 

no pecuniary benefit has, or could have, accrued to de- 
fendant from the possession of the funds.^^ So, though 
the funds in the hands of the receiver of the collecting 
bank be charged with a trust to the extent of the pro- 
ceeds directly traceable into his custody, plaintiff will 
not be allowed interest on the amount.^* And a re- 
ceiver of a defunct national bank cannot be charged with 
interest on the proceeds of collections traced into his 
possession, as funds coming into his hands are turned 
over to the comptroller of the currency, and cannot earn 
interest.^^ 

§ 187. Matters that may be shown in mitigation of damages. 

As was said in Borup v. Mninger:^^ "The defend- 
ants may mitigate the damages by showing either the 
solvency of the maker, the insolvency of the indorser, 
or that the paper was partially or wholly secured, or 
any other fact that will lessen the actual loss to the 
plaintiff." Thus, in an action for failing to demand 

23 Gray's Harbor Commercial Co. v. Continental Nat. Bank, 74 
Mo. App. 633. 

Interest was, however, allowed in the cases of Downer v. Madi- 
son County Bank, 6 Hill (N. Y.) 648, and First Nat. Bank o.: 
Meadville v. Fourth Nat. Bank of New York City, 89 N. Y. 413. 

As to rate of interest recoverable, see First Nat. Bank of 
Meadville v. Fourth Nat. Bank of New York City, 89 N. Y. 413. 

24Guignon v. First Nat. Bank of Helena, 22 Mont. 140, 55 Pac. 
1051, 1097. 

25 Richardson v. LouisvillQ Banking Co., 36 C. C. A. 307, 94 Fed. 
442. As a general rule, trustees are not chargeable with interest, 
in equity, unless they have mismanaged the trust, or have used 
the fund so that it actually earned interest. Id. 

26 Borup V. Nininger, 5 Minn. 523 (Gil. 417); First Nat. Bank of 

(295) 



§ 187 BANK COLLECTIONS. [(;;h. 10 

payment of the acceptor, and give notice of nonpayment 
to the drawer, whereby he was discharged, the insol- 
vency of the drawer may be shown in mitigation of 
damages.^^ 

So, also, in an action by the owner of a note against 
a collecting bank for failure to take proper steps to 
charge an indorser, the question of the solvency of the 
maker is material in fixing the measure of damages.^* 
But, in such case, the bank cannot show, in mitigation 
of damages, that lands mortgaged to plaintiff by the 
maker to secure the note were worth more than she 
bid them in for at foreclosure sale.^® On a parallel 
^tate of facts, however, the supreme court of New Yprk 
has come to a contrary decision. It holds that the col- 
lecting bank, when sued for negligence in failing to 
protest a conditional sale note, thereby discharging the 
indorser, may show, in mitigation of damages, that 
plaintiff bought in the subject-matter at an execution 
sale under a judgment rendered in a suit on the note 
brought by him against the maker, and that the value 
of the article greatly exceeded the price paid at such 
sale, since, in such case, defendant is entitled to credit 
for the value of the article over and above the amount 
applied on the execution.^" 

Meadville v. Fourth Nat. Bank of New York City, 77 N. Y. 320, 
329; American Express Co. v. Parsons, 44 111. 312, 317; Mott v. 
Havana Nat. Bank, 22 Hun, 354. 

27 Stowe V. Bank of Cape Fear, 3 Dev. (N. C.) 408. 

28 West V. St. Paul Nat. Bank, 54 Minn. 466, 56 N. W. 54. 

29 West V. St. Paul Nat. Bank, 54 Minn. 466, 56 N. W. 54. 

30 Mott V. Havana Nat. Bank, 22 Hun, 354. 
(296) 



Ch. 10] MEASURE OF DAMAGES. § 187 

It may be shown, in mitigation of damages for failure 
to present a sight draft for acceptance, that plaintiff 
failed to realize a possible dividend out of the assigned 
estate of the drawer in the hands of the drawer's as- 
signee.^^ 

31 Citizens' Nat. Bank of Lawrenceburg v. Third Nat. Bank of 
Greensburg, 19 Ind. App. 69, 49 N. E. 171. 

(297) 



TABLE OF CASES. 



[NUMBBES EBFEE TO PAGES.] 



Abbott V. Smith 165 

Abell Note Brokerage & Bond Co. v. Hurd 31, 49, 52 

Abrams v. Cureton 209 

Adams v. Hackensack Improvement Commission 9, 71 

V. Otterback 17 

Aetna Ins. Co. v. Alton City Bank 133, 167 

Aetna Nat. Bank v. Fourtli Nat. Bank 72 

Agricultural Bank v. Commercial Bank of Manchester 142, 144 

Akin V. Jones 76, 228, 230 

Allen V. Culver 265 

V. Erie City Bank 38 

V. Fourth Nat. Bank of New York 254 

V. Merchants' Bank 94 

V. Merchants' Bank of New York 142, 146, 177, 178 

V. Suydam 101 

AUerton v. Allerton 245 

Alley v. Rogers 7, 54, 78, 81 

Alpena Nat. Bank v. Greenbaum 239 

Amelungs' Syndics v. Bank of United States 41, 42 

American Exchange Nat Bank of Lincoln v. Metropolitan Nat. 

Bank of Kansas City 136, 138, 139, 170 

American Express Co. v. Haire 115, 166, 292 

V. Parsons 5, 65, 288, 294, 295 

V. Pinckney : 15, 278 

American Trust & Sav. Bank v. Austin. .■ 36, 71 

Anderson v. Alton Nat. Bank 167 

V. Gill 113 

V. Rogers 113, 134 



300 TABLE OF CASES. 

Andrews v. Suffolk Bank 95 

Angell V. Rosenburg 284 

Anheuser-Busch Brewing Ass'n v. Clayton 238, 239 

y. Morris 226, 227, 246 

Ankeny v. Henry 93 

Archer v. Shea 93 

Armington's Ex'rs v. Gas Light & Banking Co 291 

Armour Packing Co. v. Davis 20, 25', 26, 34 

Armstrong, In re 186, 216 

V. Commercial Bank of Pennsylvania 183, 236 

V. National Bank of Boyertown 26, 31, 184, 216 

Arnold v. Cheque Bank 257 

V. Clark 221 

Arnot V. Bingham 86, 239 

Atkinson v. Rochester Printing Co 233 

Atlas Nat. Bank v. National Exchange Bank 212 

Audenried v. Betteley 54 

Ayrault v. Pacific Bank 61, 97, 115, 141, 142, 179, 294 

Ayers v. Farmers' & Merchants' Bank 28 

B. 

Bacon v. Page 104 

Baer v. Beppert 108 

Bailey v. Bodenham 139 

v. Southwestern Railroad Bank 77 

Bailie v. Augusta Sav. Bank 14, 19, 23, 25, 154 

Balbach v. Frelinghuysen 25, 29, 34, 41, 54, 183 

Baldwin v. Bank of Louisiana 144, 145 

V. Barrows 98 

Ballou V. Boland 77 

Ballston Spa Bank v. Marine Bank 272 

Bank v. Butler 146 

Bank of Antigo v. Union Trust Co 76, 78 

Bank of Clarke County v. Gilman 54 

Bank of Commerce v. Russell 183 

V. Union Bank 258, 266 

Bank of Delaware County v. Broomhall 95, 102, 109 

Bank of Florence v. United States Savings & Loan Co 228 

Bank of Lindsborg v. Ober 133, 146, 147, 178 

Bank of Louisiana v. Stansbury 49, 201 

Bank of Louisville v. First Nat. Bank of Knoxville 12, 172 



TABLE OF CASES. 301 

Bank of Madison, In re 183, 227 

Bank of Metropolis v. First Nat. Bank of Jersey City. . .220, 221 

V. New England Bank 40, 41, 206, 214, 217 

Bank of Middlebury v. Town of Rutland 284 

Bank of Mobile v. Huggins 7, 55, 128, 282, 288 

Bank of Montreal v. Ingerson 9, 72, 85, 112 

Bank of New Hanover v. Kenan 88, 95, 101, 102, 113, 114, 292 

Bank of Orleans v. Smith 193, 276 

Bank of Republic v. Millard 33, 76, 78 

Bank of United States v. Carneal Ill, 112 

V. Davis 103 

Bank of Utica v. McKinster 14, 101, 275 

V. Smedes 14 

Bank of Washington v. Triplett 17, 101, 107, 118 

Barker v. Prentiss 34 

Barnett v. Ringgold 31 

Bartlett v. Isbell 102, 103 

Beal V. City of Somerville 4, 23, 25, 183, 242 

V. National Exchange Bank of Dallas 183 

Beauregard v. Knowlton 78 

Bedford Bank v. Acoam 76 

Bell V. Tilden 53 

V. Waudby 272 

Bellemire v. Bank of United States 142, 162 

Bellows V. Norton 191 

Bennecke v. Insurance Co 98 

Best v. Nokomis Nat. Bank 30 

Billingsley v. Pollock 229, 231, 239 

Bird V. Louisiana State Bank 121 

Birmingham Nat. Bank v. Bradley 252, 258, 262, 265 . 

Black v. Enterprise Ins. Co 52 

Blaine v. Bourne 30, 34, 220, 221 

Blake v. State Sav. Bank 228 

Blakeslee v. Hewett 29, 103, 108, 118 

Blane, Ex parte 241 

Bliss V. Cutter 79 

Bohl V. Carson 117 

Boone County Nat. Bank v. Latimer 245 

Borup V. Nininger 94, 101, 275, 282, 288, 292, 295 

Bosworth V. Jacksonville Nat. Bank 76 

Bowers v. Evans 77 



302 TABLE OF CASES. 

Bowers v. Trevor 33 

Bowling V. Arthur I44 

Bowman v. Evans 234 

V. First Nat. Bank of Spokane 29, 192, 230 

Boyd V. Emerson 24, 28 

Boykin v. Bank of Fayetteville 30, 184, 208, 209, 220, 221, 222 

Boylston Nat. Bank v. Richardson 196 

Bradstreet v. Everson 163 

Brahm v. Adkine 33 

Branch v. United States Nat. Bank 31, 208 

Branch Bank v. Knox 45 

Brandao v. Barnett 218 

Brewster v. Burnett 269 

Briggs V. Central Nat. Bank 188 

Brinkman v. Hunter 106 

British & American Mortgage Co. v. Tibballs 85 

Britton v. Niccolls 142, 144 

Brooks V. Bigelow 33 

Brown, In re . . . '. 74 

V. Ames 260 

V. Lusk 109 

Bruce v. Baxter 281, 282 

Bruner v. First Nat. Bank of Johnson City 228, 240, 243 

Brusegaard v. Ueland 27, 37 

Bryant v. Moore 98 

Buckley v. Second Nat. Bank of Jersey City 255 

Buell V. Chapin , 196 

Bullard v. Randall 77 

BuUer v. Harrison 195 

Bilrkhalter v. Second Nat. Bank of Brie 82, 192 

Burnham v. Webster 103, 118 

Burr v. Willson .- 284 

Butler V. Paine 81 

Butts V. Phelps 47 

c. 

Caldwell v. Evans 9, 10 

-California Bank v. Sayre 272 

Canal Bank v. Bank of Albany 266, 269, 270 

Canonge v. Louisiana State Bank 122 

•Canterbury v. Bank of Sparta 123, 196 



TABLE OP CASES. 303 

■Capitol State Bank v. Lane 79, 122, 128, 282 

Cardwell v. Allan 120 

Carlinville Nat. Bank v. Wilson 167 

Carpenter v. North Borough Nat. Bank 265 

Carr v. National Security Bank 76 

Carroll v. Exchange Bank 214 

Carter v. Lehman 20 

V. Talcott 81 

Castle V. Corn Exchange Bank 151, 209 

Cavin v. Gleason 228, 233, 234 

■Cecil Bank v. Farmers' Bank of Maryland 220 

Central Georgia Bank v. Cleveland Nat. Bank 5, 6, 13, 47, 79, 279 

•Central Nat. Bank of Baltimore v. Connecticut Mutual Life Ins. 

Co 42, 202, 206, 234, 236 

Central Railroad v. First Nat. Bank of Lynchburg 32, 205 

Chapman v. McCrea 115, 118, 292 

V. Union Bank 63, 66 

'Chase v. Burnham 48 

■Cheney v. Libbey 9 

■Chicopee Bank v. Philadelphia Bank 64, 65, 66, 112 

Chism V. First Nat. Bank of New York 255 

■Citizens' Bank of Baltimore v. Howell 142, 143, 164 

Citizens' Bank of Paris v. Houston 82 

•Citizens' Bank of Steubenville v. Carson 75 

Citizens' Nat. Bank of Lawrenceburg v. Third Nat. Bank of 

Greensburg 104, 105, 106, 118, 204, 280, 281, 285, 296 

•City Bank of Hopkinsville v. Blackmore 76 

•City Bank of Sherman v. Weiss 223, 226 

•City Nat. Bank of Dayton v. Clinton County Nat. Bank of Wil- 
mington 115, 118, 126, 127 

City of Philadelphia v. Eckels 21, 227, 228 

Claflln V. Wilson 29, 220 

Clark V. Bank of Montreal 68 

V. Merchants' Bank ' .22, 28, 217 

Clarke v. London & County Banking Co 256 

-Clews V. Bank of New York Nat. Banking Ass'n 264, 271 

Coates V. Preston 11,74, 78 

'Cobb V. Becke 149 

Cockrill V. Joyce 39, 41 

Cooks V. Masterman 259 

«Coddington v. Bay 217 



304 TABLE OF CASES. 

Coddington v. Davis 61 

Cody V. City Nat. Bank of Grand Rapids 33, 223, 224 

Coggs V. Bernard 4 

Coghlan v. Dinsmore 107, 115, 117, 127, 282 

Cole V. Jessup 108 

Collier v. Pulliam 282 

Colorado Nat. Bank of Denver v. Boettcher 76, 77 

Colt V. Noble 120 

Columbia Nat. Bank of Lincoln v. German Nat. Bank 77 

Columbian Bank's Estate 236 

Commercial Bank v. Red River VaUey Nat. Bank 

86, 87, 88, 95, 158, 179, 292 

Commercial Bank of Albany v. Hughes 22 

Commercial Bank of Clyde v. Marine Bank 211, 217 

Commercial Bank of Kentucky v. Barksdale 144 

Commercial Bank of Manitoba v. Chicago, St. P. & K. C. Ry. Co. 67 

Commercial Bank of Pennsylvania v. Armstrong 

29, 183, 216, 221, 236 

V. Union Bank of New York 80, 83, 151, 179, 217 

Commercial Nat. Bank v. Armstrong 30 

V. Henninger 72 

V. Proctor 40 

Commercial Nat. Bank of Cincinnati v. Hamilton Nat. Bank of 

Port Wayne 208, 220, 221, 222 

Commtercial State Bank v. Rowland 201, 206 

Commercial & Farmers' Nat. Bank of Baltimore v. Davis 

183, 228, 233 

Condon v. Pearce 260 

Conroy v. Warren 53 

Continental Nat. Bank of New York v. Weems 226, 235, 238, 245 

Cook V. Cook ' 194, 211 

Cooke, Ex parte 232 

Coors V. German Nat. Bank 203 

Corbett v. Fetzer 34 

Corn Exchange Bank of Chicago v. Blye 37, 38, 51 

Costin V. Rankin 102 

Cottle V. Cole 31, 49, 52, 201 

Cotton V. Union Bank 275, 286 

County of Middlesex v. State Bank 29, 63 

Coventry v. Gladstone 68 

Cowperthwaite v. Sheffield 74 

Cox V. Prentice 195 



TABLE OF CASES. 305 

Cragie v. Hadley 141 

Craig Medicine Co v. Merchants' Bank 202 

Crane v. Fourth St. Nat. Bank 30, 212 

Crawford v. Louisiana State Bank 282 

V. West Side Bank 250, 254 

Crippen v. American Nat. Bank of Kansas City 256 

Crosby v. Wright 93, 260 

Cross V. Brown 48 

Crothers v. Lee 229 

Grouse v. First Nat. Bank of Penn Yan 126, 282 

Crow V. Mechanics' & Traders' Bank 50 

Cummins v. Heald 147 

D. 

Dabney v. Campbell 17, 18 

Dalrymple v. Hillenbrand 93 

Daly V. Butchers' & Drovers' Bank of St. Louis 170 

D'ana v. Third Nat. Bank 78, 216 

Daniel v. St. Louis Nat. Bank 190 

Davenport Plow Co. v. Lamp 233, 240 

Davey v. Jones 141 

Davis V. First Nat. Bank of Fresno 17, 18, 64, 65, 66, 137, 140 

V. Morgan 34 

V. Talbot 98 

Dawson v. Chamney 66 

Day V. Holmes 48 

V. Riddley 66 

Dean v. Bassett 98 

Dedham Nat. Bank v. Everett Nat. Bank 251, 262 

0eg V. Deg : 232 

De Land v. Dixon Nat. Bank 272 

De Nayer v. State Nat. Bank 193 

Dern v. Kellogg 18, 87, 88, 89, 95, 290, 292 

Diamond Mill Co. v. Groesbeeck Nat. Bank 96, 283 

Dickerson v. Wason 20, 26, 31, 210 

Ditch V. Western Nat. Bank of Baltimore 32 

D. M. Osborne & Co. v. Rider 48 

Dod V. Fourth Nat. Bank of New York 211 

Doppelt V. National Bank of Republic 33, 223, 224 

Dorchester & Milton Bank v. New England Bank 18, 160 

D'owner v. Madison County Bank 122, 293, 294 

21 



306 TABLE OF CASES. 

Dows V. National Exchange Bank of Milwaukee 69, 71 

V. Wisconsin Marine & Fire Ins. Co 69 

Drain v. Doggett 80, 85 

Drovers' Nat. Bank v. Anglo-American Packing & Provision Co. 

134, 136, 139, 167 

Drown v. Pawtucket Bank 36, 48 

Duncan v. Jaudon 202 

Dung V. Parker 106 

Durnf ord v. Patterson 282 

Dusenbury v. Ellis ' 106 

Dyas v. Hanson 14, 60, 209 

E. 

Eagle Bank v. Chapin 120 

Baton v. Alger 49, 53 

v. Cook 196 

Bdgerton v. Brackett 49 

Edson V. Angell 233 

Eichelberger v. Pike 284 

Ellis V. Ohio Life Insurance & Trust Co. 252 

Emporia Nat. Bank v. Shotwell 256 

Englar v. Offut 202, 236 

Bnglert v. White 9 

Ervin v. Brooks ■ 104 

Escharte v. Clark 152 

Espy v. Bank of Cincinnati 264 

Essex County Nat. Bank v. Bank of Montreal 78, 82 

Eufaula Grocery Co. v. Missouri Nat. Bank 173, 187, 194, 211 

Evansville Bank v. German- American Nat. Bank 

29, 30, 31, 183, 216, 220, 221 

Exchange Bank of Wheeling v. Sutton Bank 11, 76. 119, 185 

Exchange Nat. Bank of Pittsburgh v. Third Nat. Bank of New 
York 14, 45, 107, 160, 177, 179 

F. 

Fabens v. Mercantile Bank 101, 107, 118 

Fahy v. Fargo 290 

Failing v. Fargo 290, 291 

Farmer v. People's Bank 255 

Farmers' Bank of Bridgeport v. Vail 103 

Farmers' Bank & Trust Co. v. Newland 78, 83, 84, 171, 280, 281 



TABLE OF CASES. 3O7 

Farmers' & Mechanics' Bank v. Baldwin 35 

Farmers' & Mechanics' Nat. Bank v. King 203, 227, 234 

Farnsworth, In re 200 

Farwell v. Curtis 136 

V. Meyer 33 

Fawsett v. National Life Ins. Co 31 

Fay V. Strawn 60, 61, 133, 167 

Fifth Nat. Bank v. Armstrong 20, 26, 220 

V. Ashworth 80, 83 

Finch V. Karste 88, 95, 279, 280, 281, 283 

First Nat. Bank v. Butler 143 

First Nat. Bank of Abilene v. Naill 89 

First Nat. Bank of Alexandria v. Payne's Assignees 186 

First Nat. Bank of Arkansas Pass v. St. Charles Sav. Bank. . . 116 
First Nat. Baik of Birmingham v. First Nat. Bank of Newport. . 

5, 15, 45, 60, 62, 64, 285, 289 

First Nat. Bank of Carthage v. Yost 250 

First Nat. Bank of Chattanooga v. Behan 193 

First Nat. Bank of Chicago v. Citizens' Sav. Bank of Detroit. . 

134, 137 

V. Northwestern Nat. Bank 254, 260 

First Nat. Bank of Cincinnati v. Moore 154 

First Nat. Bank of Circleville v. Bank of Monroe 185, 208, 223 

First Nat. Bank of Clarion v. Gregg 211, 216 

First Nat. Bank of Corsicana v. City Nat. Bank of Dallas. . .134, 138 
First Nat. Bank of Crown Point v. First Nat. Bank of Richmond 

30, 31, 54, 141, 185, 220, 276 

First Nat. Bank of Davenport v. Price 104, 128 

First Nat. Bank of Denver v. Devenish 194 

First Nat. Bank of Evansville v. Fourth Nat. Bank of Louisville 

50, 51, 134, 289 

V. Fourth Nat. Bank of Richmond 56 

First Nat. Bank of Ft. Collins v. Hughes 36, 48 

First Nat. Bank of Ft. Worth v. Payne 19, 50 

V. American Exchange Bank 256 

Fi.st Nat. Bank of Girard v. Craig 133, 147, 169 

First Nat. Bank of Grafton v. Buckhannon Bank of West Vir- 
ginia 113 

First Nat. Bank of Lancaster v. Shreiner 74 

First Nat. Bank of Lapeer v. Sanford 234, 235, 240 

First Nat. Bank of Leadville v. Leppel 200, 206 

First Nat. Bank of Los Angeles v. Dickson 37, 38 



308 TABLE OF CASES. 

First Nat. Bank of Lyons v. Ocean Nat. Bank 13 

First Nat. Bank of Manning v. German Bank of Carroll County. . 

142, 144, 145 
First Nat. Bank of Meadville v. Fourth Nat. Bank of New York 

City 122, 276, 288, 290, 291, 295 

First Najt. Bank of Meridian v. Strauss 54, 217, 224 

First Nat. Bank of Montgomery v. Armstrong 235, 237 

First Nat. Bank of Neplii t. Brown 16 

First Nat. Bank of Northumberland v. McMichael 77, 119 

First Nat. Bank of Omaha v. Chilson 9 

V. First Nat. Bank of Moline 179 

First Nat. Bank of Pawnee v. Sprague 170 

First Nat. Bank of Richmond v. Davis 26, 140, 183, 209 

First Nat. Bank of Richmond v. Wilmington & W. R. Co. . .183, 192 

First Nat. Bank of Texarkana v. Munzesheimer 48, 75 

First Nat. Bank of Trinidad v. First Nat. Bank of Denver. . .67, 290 

First Nat. Bank of Union Mills v. Clark 76 

First Nat. Bank of Wellsborough v. Bache 202 

First Nat. Bank of Wellston v. Armstrong 242 

First Nat. Bank of Wymore v. Miller 113, 114 

Firth V. Thrush 120 

Fishwick's Adm'r v. Sewell 278 

Fiske V. Witt 201 

Fitzpatrick v. School Commissioners 272 

Flannery v. Coates 55 

Fleckner v. Bank of United States 35 

Foley V. Smith 204 

Polger V. Chase Ill, 112 

Fonner v. Smith 77 

Forster v. Clements 72 

V. Fuller 14 

Foster v. Rlncker 3, 5, 80, 231, 233 

Fourth Nat. Bank of Cincinnati v. Mayer 22, 32, 205 

Fowler v. Bowery Sav. Bank 194 

Fox V. Davenport Nat. Bank 125 

Francis v. Evans 77, 85, 234, 240 

Frank v. Bingham 240 

Freeman v. Citizens' Nat. Bank 50, 89 

v. Exchange Bank of Macon 32, 205 

Freeman's Bank v. Perkins 103, 108 

Freeman's Nat. Bank v. National Tube-Works Co 

7, 17, 18, 29, 30, 35, 183, 222 



TABLE OP CASES. 309 

Freiberg v. Stoddard 230, 233, 234, 239 

French v. Jarvis 20, 49 

Friberg v. Cox 22, 23, 243 

Frith V. Cartland 232 

Fry V. Rousseau 80 

Fuller V. Bennett 20, 47 

V. Jewett 38 

Fullerton v. BJink of United States 112 

Funkhouser v. Ingles < 13 

Furgerson v. Staples 93 

G. 

Gaar v. Louisville Banking Co 33 

Gardner v. Adams 275 

Garland v. Salem Bank 127 

Gazette Printing Co. v. Morse 286 

Georgia Nat. Bank v. Henderson 109, 110, 283 

Georgia Seed Co. v. Talmadge 76 

Gerhardt v. Boatman's Sav. Institution 14, 145, 146 

German American Bank v. Third Nat. Bank 80, 83, 242 

German Fire Ins. Co. v. Kimble 227, 236 

German Nat. Bank of D'enver v. Burns 134, 135, 159 

Gettysburg Nat. Bank v. Kuhns 25 

Gibson v. City of Erie 21 

Gibbons v. Hecox 40 

Gilbert v. Guignon 68 

Giles V. Perkins 25, 40 

Givan v. Bank of Alexandria 26, 134, 288 

Globe Furniture Co. v. School District No. 22 190 

Gloucester Bank v. Salem Bank 252 

Goddard v. Merchants' Bank 254 

Goetz V. Bank of Kansas City 29 

Goodell V. Buck 236 

Goodloe V. Godley Ill 

Gordon v. Muchler 71 

V. Rasines 183, 186 

Goshen & Minisink Turnpike Road v. Hurtin 14 

Gowan v. Jackson 116, 119 

Grammel v. Carmer 77 

Graydon v. Patterson 80, 81, 83 

Gray's Harbor Commercial Co. v. Continental Bank... 104, 291, 294 



310 TABLE OF CASES. 

Green v. Purcell Nat. Bank 252, 257, 258, 265, 266 

Greenatine v. Borcliard 48 

Greene v. Jackson Bank. . .^ 42 

Greenfield Bank v. Crafts 271 

Gregg V. Bl-MetalUc Bank 123, 183, 187, 196 

Greneaux v. Wheeler 33 

Grlffln V. Chase ; 227 

Grissom v. Commercial Nat. Bank 9, 17, 71 

Grosvenor r. Farmers' & Mechanics' Bank 39 

Guelich v. National State Bank of Burlington 276 

Guelick v. National State Bank of Burlington 90 

Guignon v. First N-at. Bank of Helena 215, 241, 295 

H. 

Haekett v. Reynolds 211, 221 

Haddock v. Citizens' Nat. Bank 114 

Haines v. McFerren 71 

Haire v. Miller 278 

Hakman v. Sehaaf 39 

Hallam v. Tillinghast 17, 183, 192, 230 

Hallett, In re 241 

Hallowell v. Curry Ill, 118, 281 

■ Hamill v. German Nat. Bank 82, 193 

Hamilton v. Cunningham 101 

Hancock v. Colyer 38, 205 

Hardy v. Pllcher 107 

Harley v. Eleventh Ward Bank 187 

Harris v. Clark 74 

Harrison v. Nicollet Nat. Bank of Minneapolis 109 

V. Smith 227, 234, 235, 240 

Harrison Nat. Bank of Cadiz v. Ellicott 238 

Hartford v. Jackson 38 

Hatch V. Fourth Nat. Bank 267 

Hawkins v. State Loan & Trust Co 278 

Hawley v. Jette 109 

Haynes v. Birks 120 

Hazlett V. Commercial Nat. Bank 81, 82 

Heath v. Portsmouth Sav. Bank 62 

Henderson v. O'Conor 241, 243 

V. Pope 110 

V. United States Nat. Bank 78 

Herrick v. Gallagher 93, 195, 265 

Heywood v. Pickering 139 



TABLE OF CASES. 311 

Higgins V. Hayden 22, 26, 228 

Hills V. Place 9 

Hobbs V. Chicago Packing & Provision Co 70 

V. Straine 126 

Hodges V. Clinton 80 

Hoffman v. First Nat. Bank of Jersey City 30, 220, 235 

V. Miller 26, 215 

Holm V. Bennett 98 

Holmes v. First Nat. Bank of Lincoln 34 

V. Oilman 233, 236 

V. Roe 113 

Home Nat. Bank v. Newton 72 

Hoover v. Wise 149, 168 

Houghton V. Lynch 15 

Howard v. Duncan '. 272 

V. Ives 103 

V. Walker 17, 188 

Howland v. Spencer 38 

Huff V. Hatch 108, 293 

Hughes V. Neal Loan & Banking Co 272 

Hum V. Union Bank 174 

Humphrey v. Havens 98 

Hunt V. Townsend 245 

Hutchinson v. Manhattan Co 211 

Hyde v. First Nat. Bank of Lacon 149, 200, 201 

V. Planters' Bank of Mississippi 142, 144 

Hynes v. Patterson 294 

I. 

Ide v. Bremer County Bank 90 

Illinois Trust & Sav. Bank of Chicago v. First Nat. Bank of Buf- 
falo 228, 233, 236 

Importers' & Traders' Nat. Bank v. Peters 21, 202, 227, 245 

Independent District of Boyer v. King 233 

Indig v. National City Bank of Brooklyn 72, 135, 139, 188, 257, 281 

Isbell v. Lewis 120 

Ivory V. Bank of State 102, 109 



Jackson v. Union Bank 164, 177 

Jacobsohn v. Belmont 66 



313 TABLE OF CASES. 

Jagger v. National German Bank of St. Paul 101, 116, 118, 284 

Jefferson County Sav. Bank v. Commercial Nat. Bank. . . .17, 83, 84 

Jenks V. Doylestown Bank ; Ill 

Jockusch V. Towsey .44, 54, 185, 241 

John R. Davis Lumber Co. v. First Nat. Bank 38 

Jones V. Hamlet 272 

V. Kilbreth 7, 186, 226 

V. Milliken 211 

Joyce V. Auten 42 

Justh V. National Bank of Commonwealth. 267 

K. 

Kahnweiler v. Anderson 77 

Kampmamn v. Williams 49 

Kansas State Bank v. First State Bank of Marion 233, 241 

Keene Five-Cents Sav. Bank v. Archer 9 

Kent v. Bornstein 269 

v. Dawson Bank 11, 13 

Kershaw v. Ladd 14, 123, 125', 139 

Keyes v. Bank of Hardin 44, 279 

V. Fenstermaker 104 

Kilgore v. Bulkley 93 

Killmore v. Culver 53 

Kilsby V. Williams 28 

King V. Fleece 49, 78 

Kinney v. Paine 229, 231 

Kip V. Bank of New York 233 

Kirkham v. Bank of America 107, 123, 124, 128, 151, 187, 196 

Kleinwort v. Le Comptoir Nationale d'Bscompte de Paris . . . 250, 257 

Klindt V. Higgins 9 

Knapp V. Crowell 39 

KnatchbuU v. Hallett 225, 232 



La Banque Lacques-Cartier v. La Corporation de Limoilon. . .82, 112 

La Cave & Co. v. Credit Lyonnais 250, 257 

Laclede Bank v. Schuler 216 

La Farge v. Kneeland 93, 265 

Land Title & Trust Co. v Northwestern Nat. Bank 256 

Lanf ear v. Blossman 67 

Lanier v. Nash 50, 219 



TABLE OF CASES. 3I3 

Laplin v. Sherman 49 

Lawrence v. Stonlngton Bank 34, 161, 214, 216, 221, 223 

Lazier v. Horan 9, 72 

Leach v. Hale 46 

Le Blanc, In re 233 

Lee V. Chilllcothe Branch Bank 32 

Lehman v. Tallassee Mfg. Co 42 

Leinau v. Dlnsmore 290 

Lester v. Given 78, 104 

Levi V. National Bank of Missouri 25, 80, 83, 184, 186, 210, 242 

Lihbey v. Hopkins , 80 

Lindauer v. Fourth Nat. Bank 211 

Lindley v. First Nat. Bank of Waterloo 106 

Little V. Chadwick 233, 236 

V. O'Brien 50 

Lloyd V. Osborne 113 

V. Sigourney 30 

V. West Branch Bank 15 

Lochenmeyer v. Fogarty 80 

Locke V. Leonard Silk Co 30 

V. Merchants' Nat. Bank 286 

Louisiana Ice Co. v. State Nat. Bank of New Orleans. .17, 55, 56, 226 
Louisville & Nashville R. Co. v. Dies 60 

V. Grant 60 

Lowenstein v. Bressler 79, 82, 134 

Luff V. Pope 77 

M. 

McBride v. Farmers' Bank of Salem 210, 211, 217 

McCallum v. Driggs 49 

MeCarver v. Nealey 80, 81, 85 

McClure v. D. M. Osborne & Co 66, 147 

McCuUoch V. McKee 80, 83 

McCullock V. Commercial Bank 120, 121 

McGill V. Ott 71 

McLennan v. Bank of California 63, 200 

McLeod v. Evans 77, 234, 240 

McNeil V. Wyatt 120 

Mackersy v. Ramsays 149 

Magdeburg v. Wihlein 16 

Manchester Bank v. Fellows 103, 118 

Mandeville v. Union Bank of Georgetown 72, 76 



314 TABLE OF CASES. 

Manhattan Co. v. Reynolds 55. 

Manufacturers' Nat. Bank v. Continental Bank 

30, 54, 140, 183, 210, 220 

V. Thompson 195 

Marine Bank v. Fulton Bank 80, 83, 91, 140, 183, 184 

Marine Bank of Chicago v. Chandler 85, 92 

V. Rushmore 92 

Marine Nat. Bank v. National City Bank 264 

Marks v. Bodie Bank 207 

Masich v. Citizens' Bank 133, 174 

Matthews v. Brown & Co 257 

May V. Jones 143, 144, 145, 146 

Mayer v. City of New York 193, 257 

Mead v. Engs 102, 118, 120 

Meagher v. Campbell 38 

Mechanics' Bank v. Earp 26, 94, 163 

V. Valley Packing Co 29, 220 

Mechanics' Bank at Baltimore v. Merchants' Bank at Boston. . . 

14, 109, 114, 121 

Megee v. Beirne 38 

Meldrum v. Henderson 76 

Merchants' Bank v. State Bank 62, 271 

V. Woodruff i 109 

Merchants' Bank of Baltimore v. Bank of Commerce of New 

York 96, 180, 201, 275, 276 

Merchants' Nat. Bank v. Goodman 83 

V. McNulty 19 

V. Ritzinger 40 

Merchants' Nat. Bank of Philadelphia v. Goodman 80, 134, 139 

Merchants' Nat. Bank of St. Paul v. Hanson 29, 30, 220 

Merchants' Nat. Bank of Savannah v. Guilmartin 14 

Merchants' State Bank v. State Bank of Phillips 117, 292 

Merchants' & Manufacturers' Bank v. Stafford Nat. Bank 

60, 101, 179, 289 

Merchants' & Planters' Bank v. Meyer 11, 39, 74 

Merryman v. State 180 

Messmore v. Morrison 104 

Metropolitan Nat. Bank v. Loyd 20, 33, 265 

V. Merchants' Nat. Bank 32, 216, 254, 269, 271 

Midland Nat. Bank v. Roll 32 

Midland Nat. Bank of Kansas City v. BrightwelL.io, 233, 238, 239, 240 
Miller v. Drake 14 

V. Henry 33 



TABLE OF CASES. 3I5 

Milliken v. Shapleigh 210, 215 

Minneapolis Sash & Door Co. v. Metropolitan Bank 

61, 133, 136, 138, 139 

Miranda v. City Bank of New Orleans 127, 141 

Mitchell V. Byrne 19$ 

Montague v. Sandwich 278 

Montgomery County Bank v. Albany City Bank 151, 152, 179, 293 

Montillet v. Bank of United States 141, 282 

Moore v. Hall 49 

V. Louisiana Nat. Bank 67 

V. Meyer 8,9, 189 

Morgan v. Tener 163, 277 

Morris v. Eufaula Nat. Bank 113, 129, 279 

V. Union Nat. Bank of Sioux Falls 110 

Morrison v. McCartney 78 

Morton v. Rogers 53 

Mott V. Havana Nat. Bank 288, 295, 296 

Mound City Paint & Color Co. v. Commercial Nat. Bank of Og- 

den 45, 87, 123, 124, 179 

Mowatt V. McLelan 93, 265 

Muller V. Poudir 123 

Murdock V. Mills 106 

N. 

Naser v. First Nat. Bank 30, 151, 220 

Nassau Bank v. National Bank of Newburgh 266, 267 

National Bank v. City Bank 96 

National Bank of Commerce v. American Exchange Bank 

18, 80, 83, 84, 196 

V. Manufacturers' & Traders' Bank 268 

V. National Mechanics' Banking Ass'n 254, 264 

National Bank of Commerce of Boston v. Merchants' Nat. Bank 

of Memphis ,67, 68 

National Bank of Commerce of Seattle v. Johnson 

17, 30, 80. 134, 183, 184, 220 

National Bank of Newburgh v. Smith 74 

National Bank of North America v. Bangs 252, 258 

National Butchers' & Drovers' Bank v. Hubbell 20, 25, 29, 30 

National Citizens' Bank of New York v. Citizens' Nat. Bank. . . . 221 

National Commercial Bank v. Miller 32, 47 

National Exchange Bank v. National Bank of North America. . . 71 
National Exchange Bank of Dallas v. Beal 208, 214 



316 TABLE OF CASES. 

National Gold Bank & Trust Co. v. McDonald 24, 28 

National Life Ins. Co. v. Coble 85 

National Pahquioqe Bank v. First Nat. Bank of Bethel 180 

National Park Bank v. Seaboard Bank. .20, 93, 184, 210, 220, 265, 266 

National Park Bank of New York v. Bldred Bank 264 

National Union Bank v. Earle 213 

Nebraska Nat. Bank of Omaha v. Logan 113, 134 

Neely v. Rood 236 

Newcomb v. Boston & Lowell R. Corp 68 

New Orleans Canal & Banking Co. v. Escoffie 117 

New York Fire Ins. Co. v. Ely 35 

Niagara County Bank v. Baker 35 

Nichols V. Gross 50 

Nininger v. Knox 283, 285 

Noe V. Gregory 106 

Nonotuck Silk Co. v. Flanders 76, 228, 234, 240 

North V. Turner 275 

Northwestern Nat. Bank of Chicago v. Bank of Commerce of 

Kansas City 220, 250, 262 

Nunnemaker v. Lanier 80, 83, 84, 122 

Nurse v. Satterlee 226, 227, 233, 245' 

O. 

Oakey v. Bank of Louisiana 141, 142 

O'Brien v. Grant 212 

O'Donnel v. Seybert 275 

Ogden V. Blydenburgh 93 

V. Dobbin 103, 111 

Omaha Nat. Bank v. Kiper 79, 80, 288, 290 

Onondaga County Sav. Bank v. United States 261 

Ontario Bank v. Lightbody 81 

Oppenheim v. West Side Bank 250, 254, 258, 264 

Overman v. Hoboken City Bank 17, 212 

Oxford Lake Line v. First Nat. Bank of Pensacola 48, 67, 70, 98 

P. 

Pacmc Bank v. Mitchell 22, 183, 185 

Padfield v. Green 78, 80, 201 

Palmer v. Holland 152, 153 

Parker v. Harden 278 

Patriotic Bank of Washington v. Farmers' Bank of Alexandria. . 114 



iTABLB OF CASES. 317 

Payne v. Albany City Nat. Bank 36 

Peak V. Ellicott 227, 234 

Pease v. "Warren 9 

Peck V. First Nat. Bank of New York 21 

Pendleton v. Bank of Kentucky 62, 63 

Penn Bank v. Farmers' Deposit Nat. Bank 42 

Pennell v. Deffell 232 

People V. Bank of Danville 7, 192, 231, 233 

V. Bank of North America 255, 294 

V. City Bank of Rochester 80, 234, 244 

V. Gibbs 275 

V. Merchants' Bank of Binghamton 239 

V. Merchants' & Mechanics' Bank of Troy 76, 135, 238, 239 

V. Tioga Common Pleas 275' 

V. Utica Ins. Co 35 

Peoples' Bank of Lewisburg v. Jefferson County Saving Bank.. 

30, 55, 218, 220, 221, 223 

Peoples' Bank of 'New York v. Citizens' Nat. Bank 221 

Peoples' Bank of Wilkesbarre v. Legrand 74 

Peoples' Nat. Bank v. Freeman's Nat. Bank 70 

Peoples' State Bank v. St. Landry State Bank 37 

Peters v. Bain 236 

Peterson v. Union Nat. Bank 28, 29, 63 

Philadelphia Nat. Bank v. Dowd 229, 233 

Phipps V. Chase 112 

V. Millbury 120, 121 

Pickering v. Cameron 203, 204 

Pickle V. Muse 255 

Planters' & Farmers' Nat. Bank of Baltimore v. First Nat. Bank 

of Wilmington 140, 165 

Porthouse v. Parker 116, 119 

Power V. First Nat. Bank of Fort Benton 157, 177 

Pratt V. Foote 196 

Prescott V. Leonard 7, 20, 34 

Prescott Bank v. Caverly 93 

Price V. Neal 250, 251, 254 

Prideaux v. Criddle 149 

Pritchard v. Louisiana State Bank 141, 277, 293, 294 

Q. 
Quinn v. Gross 278 



318 TABLE OF CASES. 

R. 

Rahn v. Philadelphia Bank Ill 

Rapp V. National Security Bank 263, 266 

Rathbone v. Sanders 214 

Reeves v. State Bank 154, 179, 191, 201, 237 

Reynes v. Dumont 41 

Rhines' Adm'rs v. Evans 277 

Richards v. Stephenson 205 

Richardson v. Denegre 21, 54, 242 

V. Louisville Banking Co 210, 295 

Richmond & Danville R. Co. v. Jones 60 

Ridgely Nat. Bank v. Patton 10, 71 

Riverside Bank v. First Nat. Bank of Shenandoah 72, 195 

Roanoke Nat. Bank v. Hambrick 98, 129, 279 

Robarts v. Tucker 72 

Robbins v. Bacon 77 

Roberts v. Parrish 48 

V. Snow 34, 48 

Robinson v. Bank of Rochester 294 

Rock County Nat. Bank of Janesville v. Hollister 30, 52, 53 

Rodgers v. Stophel 15 

Romanski v. Thompson 232 

Rosa V. Brotherson , 217 

Rosenthal v. Ehrichler 133 

Rosson V. Carroll 120 

Rouse V. Calvin 78 

Ruidskoff V. Barrett 81 

Runt V. Herring 60 

Runyon v. Latham 15 

Russell V. Drummond 47 

V. Hadduck 40 

Ryall V. Rolle 232 

Ryan v. Manufacturers' & Merchants' Bank 50 

V. Paine 229 

V. Phillips 236, 237 

S. 

St. Joseph & G. I. R. Co. v. Palmer 60 

St. Louis & San Francisco Ry. Co. v. Johnston. . .20, 21, 33, 227, 228 

Saint Nicholas Bank v. State Nat. Bank 11, 12, 13, 151, 179 

St. Paul Nat. Bank v. Cannon 9, 71 



TABLE OP CASES. 3I9 

Sahlien v. Bank of Lonoke 17, 18, 60, 96, 125, 281 

Salomon v. State Bank 255, 258, 294 

Sayers, Ex parte 232 

Sayles v. Cox 86, 228, 244 

Schuler v. Jjaclede Bank 39 

Schumacher v. Trent '. .160, 177, 178 

Schurchardt v. Hall 67 

Scott V. Gilkey 79, 80, 82, 86, 185 

V. Ocean Bank 7, 20, 25, 28, 33, 210, 215, 217 

V. Shirk 71 

Seaton v. Scovill 120 

Sebag V. Abithol 71 

Second Nat. Bank of Columbia v. Cummings 67, 69, 80, 83, 86 

Second Nat. Bank of Lafayette v. Hill 39 

Security Bank of Minnesota y. Luttgen 69 

Security Bank of New York v. National Bank of Republic 264 

Selz V. Collins 97, 290 

Seven Corners Bank, In re 228, 229, 233, 234, 240, 241 

Shaffer v. McKee 255 

Shaw V. Spencer 202 

Sheldon v. Benham 103, 118 

Shepard v. Harrison 68 

Sheppard v. Steele 265 

Sherman v. Commercial Printing Co 15 

V. Port Huron Engine & Thresher Co 159, 191, 201 

Sherwood v. Milford State Bank 233, 234, 236 

V. Rays 50 

Shipsey v. Bowery Nat. Bank 66 

Sigourney v. Lloyd 30 

Simmons v. Belt 49 

Simpson v. Waldby 155, 177, 179 

Siner v. Stearne 163 

Slack V. Longshaw 120 

Slater v. Oriental Mills 228, 240 

Smedes v. Bank of Utica 14, 101, 120, 133 

Smith V. Essex County Bank 7, 9, 201 

V. Mercer 251 

South Park Foundry & Machine Co. v. Chicago G. W. Ry. Co. . . 27 

Stacy V. Dane County Bank 142, 143, 144, 167 

Stalker v. McDonald 217 

Stark V. United States Nat. Bank 211 

State V. Bank of Commerce of Grand Island 226, 235 



320 TABLE OP CASES. 

State V. Cochran 284 

V. Southern Bank 241, 243 

State Bank, In re 20, 25, 27 

V. Napier Ill 

State Bank of Midland v. Byrne 85' 

State Bank of Troy v. Bank of Capitol 102, 120, 121 

State Nat. Bank of Ft. Worth v. Thomas Mfg. Co 160 

Steele v. Russell 107, 115 

Steinhart v. National Bank of D. O. Mills & Co 82, 197 

Stephens v. Brooklyn Board of Education 267 

V. Thornton 15 

Stephenson v. Mount 253 

Sterling v. Marietta & Susquehanna Trading Co .50, 54 

Stevenson v. Fidelity Bank of Dfurham 217, 218, 221 

StoUenwerck v. Thatcher 68, 69 

Stout V. Benoist 250 

Stowe V. Bank of Cape Fear 296 

Straughan v. Fairchild 204 

Strauss v. Bloom & Co 81 

Streeter v. Horlock 15 

Streissguth v. National German- American Bank 157, 179 

Studebaker Bros. Mfg. Co. v. First Nat Bank of Sulphur Springs 

39, 206 

Sunderlin v. Mecosta County Sav. Bank 76 

Susquehanna Valley Bank v. Loomis 265 

Sussex Bank v. Baldwin 108 

Sutherland v. First Nat. Bank of Ypsilanti 30, 189, 220 

Sweeney v. Easter ' 183, 220 

Sweet V. Swift 104 

Swift V. Tyson 217 

T. 

Taber v. Perrott 179 

Talbot V. First Nat. Bank of Rochester 255 

Taylor v. Plumer 232 

V. Young 116, 119 

Tebbetts v. Dowd 126 

Thatcher v. Bank of State of New York 75 

Third Nat. Bank of New York City v. Merchants' Nat. Bank 260 

Third Nat. Bank of Syracuse v. Clark 220 

Thompson v. Gloucester City Savings Inst 184, 235 

V. State Bank 115, 118, 141 



TABLE OF CASES. 321 

Thompson's Appeal 236 

Thuemmler v. Barth 228, 241 

Tlernan v. Commercial Bank of Natchez 102, 142, 144 

Tinkham v. Heyworth 201 

Titus V. Mechanics' Nat. Bank at Trenton 14, 20, 41, 153, 179 

Toole V. Durand 97, 282 

Town of Madison v. Newsome ; 98 

Township of Pine Grove v. Talcott 78 

Townsley v. Sumrall 104 

Tradesman's Nat. Bank of Pittsburgh v. Third Nat. Bank of 

New York 107, 118 

Treuttel v. Barandon 30 

Trinidad First Nat. Bank v. Denver First Nat. Bank 25 

Trunkey v. Crosby 38 

Truslow V. Putnam 38 

TurnbuU v. Bowyer . . . '. 260 

Turner v. Hayden 71 

Tyson v. State Bank 44, 45, 101, 166 

V. Western Nat. Bank of Baltimore 30 

U. 

Union Nat. Bank v. Citizens' Bank of Union City 183, 244 

Union Nat. Bank of Chicago v. Goetz 236 

Union Pac. Ry. Co. v. Rainey 60 

Union Turnpike Road v. Jenkins 14 

United States v. American Exchange Nat. Bank 93, 261 

V. Graff 38 

United States Nat. Bank v. National Park Bank 250, 254, 266 

United States Nat. Bank of Omaha v. Geer 20, 21, 23, 34 

V. Westervelt 89 

V. 

Van Alen v. American Nat. Bank 234, 236 

Van Amee v. Bank of Troy 214, 215, 217, 218 

Van Leuven v. First Nat. Bank of Kingston 46 

Vickery v. State Savings Ass'n 33, 223 

Voss v. German American Bank of Chicago 74 

w. 

Wagner v. Crook 134 

22 



322 TABLE OF CASES. 

"Walker t. Bank of New York State 101 

V, State Bank 106 

Wallace v. Stone 85, 226, 236 

"Walters v. Munroe 272 

"Walton V. Henderson . , 71 

"Wanlers v. McCandless 48 

Ward V. Smitli 9, 10, 29, 81, S3 

Warner v. Fourth Nat. Bank 39, 41 

V. Lee 215, 217 

Warren v. Oilman 62, 103, 120, 132, 141 

Warren Bank v. Suffolk Bank 18, 115, 142, 161 

Washington Bank, In re Receivership of 27, 37 

Waterbury, In re 233, 234 

Waterhouse v. Citizens' Bank of Louisiana 81 

Waterloo Milling Co. v. Kuenster 167 

Watervliet Bank v. White 55, 195 

Webb V. Dickenson 265 

Weedsport Bank v. Park Bank 202 

Weinstock v. Bellwood 74 

Wellington v. Jackson 271 

West V. St. Paul Nat. Bank 101, 280, 284, 296 

West, Branch Bank v. Fulmer 102, 116, 119 

Western Brass Mfg. Co. v. Maverick 80, 83, 193 

Western Wheeled Scraper Co. v. Sadilek 112, 134, 136 

Westfall V. Mullen 233, 234, 240, 241 

West London Commercial Bank v. Kitson 106 

Wetherill v. Bank of Pennsylvania 50, 184 

Wheeler v. Northwestern Sleigh Co 98 

V. Train 38 

Whipple V. Walker 80 

Whitaker v. Bank of England 72 

White V. Commercial & Farmers' Bank of Rockhill 234 

V. Continental Nat. Bank 254, 265 

Tf. Madison 106 ' 

-V. National Bank 18, 31, 32, 35, 183 

V. Skinner 106 

V. Sweeny 258 

V. Third Nat. Bank of Cincinnati 45 

"Whitecomb v. Jacob 232 

Whiting V. City Bank of Rochester 123, 196, 197 

V. Independent Mutual Ins. Co 180 

Whitney v. Eliot Nat. Bank 76 



TABLE OF CASES. 333 

Whitney v. Merchants' Union Exp. Co 123, 125 

Whitworth v. Pelton 33 

Wilkinson v. Johnson 259 

Williams v. Cox 22, 241, 243 

V. Jones 30, 214, 223 

Williamsport Gas Co. v. Pinkerton 9, 179 

Willison V. Smith 46 

Wilson V. Smith 210, 214, 215 

V. Tolson ' .19, 31, 48, 49 

Winfleld Nat. Bank v. MoWilliams 224 

Wingate v. Mechanics' Bank 62, 119, 163, 283, 284 

Winstanley v. Second Nat. Bank of Louisville 235 

Wisconsin Marine & Fire Ins. Co. v. Bank of British North 

America 68 

Wood V. Merchants' Saving, Loan & Trust Co 9, 10, 71 

Wood River Bank v. First Nat. Bank of Omaha 116, 119, 144 

Woodruff V. Plant 113 

Woolen V. New York & Erie Bank 67 

Wyman v. Colorado Nat. Bank 41, 218 

Y. 

Yerkes v. National Bank of Port Jervis 5, 14, 19, 44, 45, 46, 60 

Young V. Noble's Ex'rs 5, 13, 14, 60, 154 

Youngs V. Lee 217 

Z. 

Zelle V. German Sav. Inst 40 



INDEX. 



[KEFERENCES AEE TO PAGES.] 



A. 

ABANDONMENT, 

of particular custom presents bank from relying thereon, 119, 
120. 

ACCEPTANCE, 

of paper for collection, inception of relation, 15. 
must follow tenor of bill, 106, 107. 

implied from unreasonable retention of paper by bank, 119. 
presentment for, duties and liabilities of collecting bank, 103- 
107. 
not necessaTy in case of paper payable on demand, 104. 
excuses for failure to present, 105, 106. 
mitigation of damages for failure to present, 296. 
notice of nonacceptance, duties of collecting bank, 117, 118. 
of drawee bank taken in lieu of payment, collecting bank liable, 

82. 
mere crediting of amount of paper to owner not such a payment 

as will discharge accommodation acceptor, 185. 
drawee on acceptance of time draft is entitled to possession of 

bills of lading, 67-71. 
of draft of insolvent national bank, lien on proceeds of collec- 
tions in its hands dates from acceptance, 216. 

ACCOMMODATION PAPER, 

mere crediting of paper to owner not such a payment as will 
discharge accommodation acceptor, 185. 

ACCOUNT STATED, 

between collecting bank and customer, effect as renunciation by 
bank of authority to collect, 55, 56. 



336 INDEX. 

ACTION, 

by collecting bank, authority to sue on paper in Its own name, 

48-53. 
on paper delivered for collection, bank as real party in in- 
terest, 52, 53. 
for possession of paper, 31, 52. 
against accommodation acceptor, 185. 
against drawer, defense tbat bank sent check directly to 

drawee, 134, note, 
against correspondent, 179, 180. 
against collecting bank, right of action in general, 274. 
for negligence of bank, assignability, 275. 
for failure to charge indorsers, 121, 122. 
surrender of paper not a condition precedent, 276. 
return of forged or altered paper not a condition precedent 

to action for money paid thereon by mistake, 268, 269. 
for noncompliance with instructions to apply deposit to 

payment of depositor's paper, 75. 
by payee for collecting paper on forged indorsement of his 

name, 255. 
by second indorser for failure of bank to notify prior in- 

dorser, 121. 
for proceeds, 200, 209. 

for misappropriation of proceeds, 200, note, 
on draft given by bank in payment, mistake. as to sufficiency 

of obligor's deposit is no defense, 194. 
pleading, 278-280, 284. 
presumption and burden of proof, 281. 
evidence, 281-284. 
verdict and judgment, 286. 
to recover payments made by mistake, 192-197. 
against correspondent for proceeds, who may sue, 209. 

ACTION ON THE CASE, 

for failure to turn over proceeds, 201, note. 

ACTUAL NOTICE, 

of dishonor does not dispense with formal notice, 118. 

ADOPTION, 

of forged signature, 271, note. 



INDEX. 327 

ADVANCES, 

by correspondent to initial bank, lien on proceeds, 214. 
collection not complete on mere credit in advance of collection, 

184. 
credit in advance of collection may be cancelled, 25-29. 

AGENCY, 

see "Principal and Agent." 

AGREEMENT, 

see "Contract." 

ALABAMA, 

rule as to liability of initial bank for defaults of corresijondents, 
172. 

ALTERATIONS, 

drawee bank not charged with knowledge of, 254. 
diligence in notifying parties to paper, 258. 
charging back amount of altered paper, 262. 
certification of altered paper by drawee bank, 271. 
recovery back of payments made on altered paper, 264. 

AMBIGUITY, 

in instructions to collecting bank, duty of bank, 48. 

AMENDMENT, 

of complaint in action against bank for negligence, 279. 

ANSWER, 

in action for negligence of bank, 280. 

of collecting bank as garnishee held to show indebtedness to the 
defendant, 38, note. 

ANTECEDENT DEBT, 

of initial bank, correspondent as holder for value, 216-218. 
indorsee for is bona fide holder as against collecting bank, 203, 
204. 

APPLICATION, 

of deposits to payment of paper, authority of bank, 71. 
effect as completion of collection, 189. 
of payments, 265, note. 



338 INDEX. 

APPROPRIATION, 

of specific fund to payment of collection, 86. 

of deposits to payment of papers, completion of collection, 189. 

ASSETS, 

doctrine that proceeds of collection are not assets of bank, 226. 
what portion impressed with trust for proceeds of collection, 245. 

ASSIGNEE, 

of insolvent bank cannot change relation of parties by entering 

or changing credits on books, 185. 
enforcing trust In proceeds collected by, 241. 

ASSIGNMENT, 

check or draft not an assignment of fund, 76-78. 
of cause of action for negligence of bank, 275. 
of note to bank as condition precedent to execution on judgment 
against bank for negligence, 276, 277. 

ASSIGNMENT FOR BENEFIT OF CREDITORS, 

by- depositor for collection does not affect lien of bank for bal- 
ance of general account, 41, 42. 

ATTACHMENT, 

of paper in bank for collection, 37, 38. 

ATTORNEYS, 

authority of bank to employ attorneys to sue on paper, 50. 
holding unpaid paper for collection, not subject to process by 

foreign attachment, 38, note, 
liability for negligence in collecting, 165, note, 
liability of collection agencies for defaults of their attorneys, 163. 
limitation of action against collection agencies for negligence 

or fraud of their attorneys, 277. 

AUTHORITY, 

of bank to make collections, 44-47. 
termination, 53-56. 
revocation by owner of paper, 54, 55. 
renunciation by bank, 55. 
where paper is payable at bank, to act as agent of holder or ob- 
ligor, 9-11. 
to surrender bills of lading accompanying drafts, 67. 
time and manner of receiving payment, 78-80. 



INDEX. . 329 

AUTHORTIY— Cont'd. 

to apply deposits to payment of depositor's paper, 71-76. 

to receive its own checks or certificates of deposit in payment, 

85, 86. 
to receive payment for corporation, estoppel of company to deny 

agency, 202. 
to sell or pledge paper indorsed in blank, 33. 
to sue on paper in its own name, 48-53. 

B. 

BAILMENT, 

collecting bank is a bailee, 3-6. 

when relation of bailor and bailee ceases, and that of creditor 

and debtor begins, 182. 
not created by indorsement for deposit and credit, 22. 
bailee bank liable for defaults of its agents, 174. 
special interest of collecting bank as bailee, 37-39. 
attachable interest of bailee, 38, note. 

BANK, 

definition by negotiable instruments laws, 73, note, 
relation when paper is payable at, 9-11. 

paper payable at, authority to apply deposits of obligor in pay- 
ment, 71-76. 
presentment of paper for payment. 111, 112. 
paper negotiable at, application of deposits to payment, 76. 
has implied power to make collections, 44-46. 
renunciation of authority to collect, 55, 56. 
representation by cashier, 62, 63. 
estoppel by acts of cashier, 16. 
insolvency at time of acceptance of paper prevents passage of 

title to bank, 21. 
banking partnership liable for act of one partner, 70, note. 

BANK NOTES, 

collecting bank cannot accept depreciated bank notes in payment, 
81. 

BANKRUPTCY, 

effect on lien of bank of filing by customer of petition in bank- 
ruptcy, 200, note. 



330 INDEX. 

BENEFITS, 

to bank form sufficient consideration for undertaking to collect, 
14. 

BILLS OP LADING, 

surrender by bank on acceptance or payment of accompanying 

drafts, 67-71. 
ratification of negligence of bank in prematurely surrendering, 

98. 

BLANK, 

indorsement in, see "Indorsement." 
BONA FIDE PURCHASER, 

collecting bank not a bona fide purchaser, 30. 

notice from possession of paper by an attorney that he holds for 
collection only, 33. 

of forged paper, 250, 251. 

bank paying value for forged draft not liable to drawee on in- 
dorsement "for collection," 261. 

rights of correspondent bank as against owner, 216. 

right to proceeds, 203. 

BOND, 

payable at collecting bank, relation of parties, 10. 

special deposit for collection, title does not pass to bank, 21. 

BOOKS, 

entries in books of collecting bank not conclusive as to existence 

of general balance against owner of collection, 41. 
of bank as evidence of balance against customer, 200, note. 

BURDEN OF PROOF, 

to show presentment for acceptance, 104. 
in actions for negligence of collecting bank, 281. 
is on bank to explain loss of paper, 64-66. 

to establish trust in assets for amount of proceeds of collection, 
226, 227. 

C. 

CANCELLATION, 

of credit given in advance of collection, 25-29. 

estoppel of bank by failure to cancel credit within reasonable 

time, 186, 187. 
of credit given for forged or altered paper, 262. 



INDEX. 331 

CAPACITY, 

of prior parties, warranty by general indoirsement, 93, note. 

CASE, 

action on the case for failure to turn over proceeds, 201, note. 

CASH, 

title passes to bank where paper was treated as cash, 21-23. 

certificates of deposit treated as cash, 85. 

trust not enforceable for proceeds of paper deposited and re- 
ceived as cash, 243. 

indorsement by bank on forged check payable to cash, not equiva- 
lent to indorsement by payee, 262. 

CASHIER, 

receipt given for paper, evidence of inception of relation, 15. 
estoppel of bank by acts of cashier, to deny status as collecting 
medium, 16. 
acts as to forged paper, 253. 
liability of collecting bank for acts of, 62, 63. 
employment of notary binds bank, 141. 
fraud of, renders bank liable to sending bank, 180. 

CERTIFICATE OF DEPOSIT, 

recovery of possession by collecting bank from issuing bank on 
refusal of the latter to pay or surrender it, 51, 52. 

collection of interest on, 90. 

authority of collecting bank to accept its 0(wn certificates in pay- 
ment, 85. 

CERTIFICATION, 

authority of collecting bank to obtain certification of check, 47. 
by collecting bank, 195. 
of altered paper by drawee bank, 271. 

of drawee bank taken in lieu of payment, collecting bank liable, 
82. 

CESTUI QUE TRUST, 

depositor for collection is not, 8. 

CHARGING BACK, 

amount of dishonored paper, 25-29. 
amount of forged or altered paper, 262. 



332 INDEX. 

CHARTER, 

implied power of banks to make collections, 44-46. 
CHECK, 

not an assignment of fund, 76-78. 

deposited as check and not cash, title remains in depositor, 23. 

on collecting bank, presumption that deposit was for collection, 

23, 24. 
payable to collecting bank, presumption that deposit was for 

cash and hot for collection, 24, 25. 
credit of checks drawn on collecting bank may be cancelled if 

drawer is without funds or insolvent, 28, 29. 
authority of bank to take checks in payment, 81-84. 
drawn on collecting bank, agency of bank for sender, 11. 

acceptance in payment of collection, 86. 
retention without efforts to collect renders bank liable, 102. 
presentment for payment, 112-114. 

of checks taken in payment, 122. 
payable at future time are entitled to grace, 109. 
notice of dishonor, 119. 
sending directly to drawee does not extinguish or pay debt,-. 134, 

note, 
remittance by, when trust arises on failure of drawer or drawee 

bank, 229. 
refusal of bank to pay does not create preference or trust on its 

insolvency, 231. 
reclaiming from receiver checks not collected at time of suspen- 
sion of bank, 242, note. 

CHOSE IN ACTION, 

assignability of cause of action for negligence of bank, 275. 

CLEARING HOUSES, 

customs of. not binding on customers of banks, 17, note. 

title to proceeds as affected by rules and usages of clearing 

house, 212. 
proceeds used in settling balances, right to trust or preference, 

241. 

COLLATERAL SECURITIES, 
lien on for advances, 214. 
lien of bank as pledgee, 41. 

bank in possession of note indorsed in blank may sell or pledge 
it, 33. 



INDEX. 333 

COLLECTION, 

rule that bank undertakes to "collect," and not merely to trans- 
mit, 148-160. 
when complete, 182. 

COLLECTION AGENCY, 

liability for default or misconduct of its attorney, 163. 
limitation of actions for negligence of, 277. 

COLLUSION, 

between obligor and cashier of correspondent, recovery by initial 
bank, 180. 

COLORADO, 

rule as to liability of initial bank for defaults of correspondents, 
159. 

COMMERCIAL PAPER, 

is payable in money only, 80. 

COMMON CARRIER, 

cannot stipulate against liability for negligence, 60. 

COMMON LAW, 

decisions in one state not evidence of common law in another 

state, 12. 
jurisdiction negativing trust relation between hank and customer, 
8. 

COMPENSATION, 

of collecting bank, 13-15. 

COMPENSATORY DAMAGES, 
see "Damages." 

COMPLAINT, 

in actions for negligence of bank, 278. 

CONDITION, 

withdrawal of conditional deposit to pay paper, 190. 

CONDITION PRECEDENT, 

surrender of paper not a condition precedent to action against 
bank for negligence, 276. 



334 INDEX. 

CONDITION PRECEDENT— Cont'd. 

owner may sue bank before suing indorser discharged by its neg- 
ligence, 121, 122. 

return of papef not a condition precedent to suit by initial bank 
against correspondent, 180. 

to action for money paid by mistake on forged or altered paper, 
268, 269. 

CONFEDERATE MONEY, 

bank liable for taking in payment, 81. 

CONFLICT OF LAWS, 

governing relation between collecting bank and customer, 11-13. 
as to operation of check or draft as assignment of fund, 78, 

note, 
governing liability of collecting bank paying forged paper, 248. 
as to liability of initial bank for defaults of correspondent, 11-13, 

148-180. 

CONNECTICUT, 

rule as to liability of initial bank for defaults of correspondents, 
161. 

CONSIDERATION, 

for undertaking to collect, 13-15. 

antecedent debt constitutes value, 203, 204, 217. 

want of, ground for recovery of payment made on altered paper, 

271. 
pleading, 279. 

CONTRACT, 

contractual limitation of bank's liability for negligence, 60, 177. 
of express company to carry and not merely to forward, 152. 
to "collect" or to "transmit," 174, 175. 

of bank to pay excess over true amount of raised draft, 268. 
by collecting bank to notify all indorsers, evidence of, 121. 
between collecting banks, 140. 

effect on title to proceeds of paper, 210. 

cannot prejudice rights of owner who had indorsed "for col- 
lection," 220, 221. 
pleading, 278. 

CONVERSION, 

limitation of action for, 278. 

of goods by (wrongful surrender of bills of lading, 70. 



INDEX. 335 

CONVERSION— Cont'd. 

of proceeds as establishing trust, 227-229. 

trust not enforceable in proceeds converted prior to Insolvency, 
241. 

liability of collecting bank paying on forged Indorsement of 
payee's name, 254, 255. 

conflict of laws governing liability of collecting bank paying 
forged paper, 248-250. 

liability of correspondent bank to owner, 208. 

complaint need not allege consideration for undertaking to col- 
lect, 279, note. 

measure of damages, 294. 

CORPORATIONS, 

payment of corporate paper to ostensible agent, 202. 
bank liable for taking acceptance of company on bill drawn on 
oflicer personally, and for taking personal acceptance of officer 
on bill against company, 106, 107. 

CORRESPONDENT, 

duties of initial bank as to paper sent to a correspondent, 94. 

care required in selection of, 132-140. 

bank negligent if it selects drawee or obligor bank, 133-140. 

liability of initial bank for defaults of, 147-179, 180. 

initial bank may stipulate against liability for defaults of, 61, 
62, 177. 

insolvency of, does not relieve initial bank from liability, 178. 

payment to, as payment to initial bank, 191. 

liability to initial bank for proceeds, 209. 

must give notice of dishonor to initial bank which had indorsed 
for collection, 120, 121. 

recovery of possession of paper by initial bank from corre- 
spondent, 51. 

correspondent banks not jointly liable to initial bank, 152. 

lien of, for debt of initial bank, 213. 

when a bona fide purchaser of paper as against original owner, 
216. 

contracts and mode of dealing with initial bank m general, 140. 

title and rights as between initial and correspondent banks, 210. 

liability to owner for proceeds, 207. 

recovery from holder of money paid by mistake to initial bank, 
193. 

measure of damages for giving erroneous information to initial 
bank causing loss, 288. 



336 INDEX. 

COSTS, 

of suits to establish land transfers lost by collecting bank, as 

element of damages, 289. 
of suits against indorsers dischsirged by negligence of bank, as 

element of damage, 293. 
of protest, when failure to deposit in advance will relieve bank, 

63, 64. 

CREDIT, 

subject to payment, is provisional, 26. 

in advance of collection may be cancelled on nonpayment, 25-29. 
collection not complete, 184. 

entry of, as factor in determining question of title, 22, 23. 

settlement between banks by mutual credits and debits, 187, 188. 

to initial bank after insolvency, effect on title to proceeds, 216. 

between banks cannot prejudice rights of owner who had in- 
dorsed "for collection," 220-223. 

dealings between banks as affecting right of correspondent to 
lien for debt of initial bank, 213-224. 

CURRENCY, 

bank must obtain payment in money, 80. 

CUSTOM, 

of banks as part of contract for collection, 17. 

to be binding must be general, uniform and reasonable, 17, 18. 

abandonment of, prevents bank from relying thereon, 119, 120. 

compliance with, as evidence of use of reasonable care, 18. 

abrogating or modifying instructions to agent, 48, note. 

justifying application of proceeds of firm paper lo payment of 
firm's debts, 206. 

of bank to act only as collecting medium does not prevent dis- 
counting, 36. 

not to disclose agency for collection is not notice of that fact to 
drawee paying on forged indorsement of payee's name, 270. 

of receiving checks in payment, 83. 
checks on collecting bank, 86. 

of accepting certificates of deposit as cash in payment of collec- 
tion, 85. 

effect of particular course of dealing on right of bank to cancel 
credit given in advance of collection, 26, 27. 

will not justify collecting bank in securing its own claim to 
prejudice of rights of owner of paper, 88. 



INDEX. 337 

CUSTOM— Cont'd. 

of dealing controls entries in books of collecting bank, on ques- 
tion of existence of balance against depositor, 41. 
as to presentment for payment, 114, 115. 
of particular bank not to present for acceptance is no defense 

for failure to present, 105. 
of employing notary, when not an excuse for want of proper 

presentment, 142. 
as to giving of notice of dishonor, 119, 120. 
retaining paper after dishonor, 125. 
does not justify or excuse the sending of paper directly to 

drawee for collection, 138-140. 
of remitting by check or draft, 192. 

negatives right to trust or preference on failure of drawer 
or drawee bank, 230. 
implied agreement between corresponding banks to comply with, 

140. 
between banks of crediting instead of remitting, does not affect 

title of depositor, 216, 220, 221. 
of dealing between banks cannot prejudice rights of owner of 

paper originally indorsed "for collection," 220, 221. 
between banks as to credit and debit of paper originally indorsed 

in blank, lien of correspondent on proceeds, 223, 224. 
of settlement by mutual credits and debits between banks, effect 

as payment, 187, 188. 
negativing liability of initial bank for defaults of correspondent, 

177, 178. 
pleading, 280. 
evidence of, opinions of merchants not competent, 178. 

D. 

DAMAGES, 

compensatory, 288. 

nominal, 289. 

interest as element of, 294. 

for failure to charge indorsers, 292. 

costs of unsuccessful suits against indorsers, 293. 
complaint in action for negligence must show damage, 279. 
on protest, not recoverable by bank as part of its compensa- 
tion for collecting, 15. 

23 



338 INDEX. 

DAMAGES— Cont'd. 

liability of obligor of paper payable at a bank, but not lodged 

there for collection, 10. 
mitigation, see "Mitigation of Damages." 

DATE, 

mistake, liabilities of collecting bank, 95. 

DEATH, 

of obligor, bank liable for failure to present for payment at late 
residence, 107, 108. 

DEBTOR AND CREDITOR, 

when collecting bank becomes debtor for the amount, 182. 
relation created by entry of credit and drafts against credit, 22, 

23. 
relation exists as to proceeds of paper deposited and received as 

cash, 243. 
right of creditors of depositor in proceeds of collection, 204. 
that note was executed to defraud creditors of third person is 

no defense to suit against bank for proceeds, 205, 206. 
initial bank becomes debtor to owner on payment of the paper 

to its correspondent, 191. 

DECLARATION, 

in actions for negligence of bank, 278. 

of alleged agent, not proof of agency, 147. 

DEFINITIONS, 
bank, 73, note, 
discounting, 35. 
mandate, 3. 
negligence, 96. 

DEGREE OF CARE, 

required of collecting bank in general, 59. 

required in taking steps to charge parties to paper, 101, 102. 

selection of agents and correspondents, 132. 

giving notice of forgery or alteration, 258. 

DELAY, 

in returning dishonored paper, 123-125. 

in taking steps necessary to charge parties to paper, 99-129. 



INDEX. 339 

DELIVERY, 

of paper to bank, inception of relation, 15. 

by placing paper in mails, 123. 

posting draft in payment of collection is a delivery of the draft, 

which cannot be withdrawn, 196. 
of papers accompanying drafts, what constitutes, 69, 70. 
order to "deliver" proceeds equivalent to order to "pay," 201. 
redelivery of paper to depositor, right to proceeds of subsequent 
collection, 203. 

DEMAND, 

draft not stating time of payment is payable on demand, 104. 

of payment, 107-115. 

necessary before bank chargeable with conversion of proceeds, 

208. 
starting running of limitations against actions for conversion, 
278, note. 

DEPOSIT, 

indorsement "for deposit" passes title, 31, 32, 270. 

by obligor to take up paper, bank as agent of obligor, 8. 

to pay paper, withdrawal, 190. 

authority of collecting bank to take its own certificates of de- 
posit in payment, 85. 

application to payment of depositor's paper, 71-76. 
completion of collection, 189. 

mistake by bank as to sufficiency, not ground for relief of bank, 
194. 

DEPOSITOR, 

for collection retains title, 19-21. , 

negligence of, when bank not liable, 63, 64. 

DEPRECIATION, 

liability of collecting bank, 91, 92. 

bank cannot take depreciated bank notes in payment, 81. 

bank liable for taking Confederate money in payment, 81. 

DILIGENCE, 

degree of care required of. collecting bank, 59, 60. 

of pla,intiffi after return of paper by bank, 283. 

in taking steps necessary to charge parties to paper, 101, ,102. 

in giving notice of forgery or alteration, 258. 



340 INDEX. 

DISCHARGE, 

of indorsers, burden of proof, 281, 282. 

by delay in presenting check for payment, 113, 114. 
by failure to demand payment, 107, 108. 
by failure of bank to protest, 116, 117. 
by premature protest, 109, 110. 
measure of damages, 292. 

liability of correspondent to Initial bank, 179. 
ratification and waiver of negligence of bank, 126-129. 
right not waived by giving extension in ignorance of dis- 
charge, 127. 
presumption that indorsers will take advantage of discharge, 

121, 122. 
promise to pay made by indorser after his legal discharge is 
not binding, 126. 
of drawee, measure of damages, 291. 

of drawer by failure to present sight draft for acceptance, 118. 
of liability of correspondent to initial bank, 180. 

DISCOUNT, 

of paper by bank transfers title, 35, 36. 
election of bank to discount or collect, 36. 

discounting bank may hold bills of lading until acceptance and 
payment of draft, 71. 

DISHONOR, 

return of dishonored paper, 123-125. 

cancellation of premature credit on dishonor of paper, 25-29. 

notice of, see "Notice." 

DIVIDENDS, 

acceptance of dividends as general creditor, effect on right to 

preference, 245. 
possibility of, showing in mitigation of damages, 296. 

DOMICILE. 

of owner immaterial on question of what law governs relation 
between collecting bank and customer, 13. 

DRAFT, 

not an assignment of fund, 76-78. 
not stating time of payment, is payable on demand, 104. 
against credit entered on receipt of paper, effect on title, 22, 23. 
bank cannot take drafts in payment, 81. 



INDEX. 341 

DRAFT— Cont'd. 

taken in payment, failure to protest, 122. 
remittance by, 191. 

when trust arises on failure of drawer or drawee bank, 229. 

DRAWEE, 

on acceptance of time draft is entitled to possession of bills of 

lading, 67-71. 
is not a suitable subagent or correspondent, 133-140. 
insolvency of, no excuse for failure to present for acceptance, 

105. 
charged with knowledge of signature of drawer, 250. 
bank not charged with knowledge of body of* Instrument, 254. 
certification by drawee bank does not warrant genuineness of 

body of instrument, 271. 
measure of damages for discharge of, 291. 

DRAWER, 

insolvent or without funds, ground for cancellation cf credit 

given for paper, 28, 29. 
name forged, liability of collecting bank paying paper, 250. 

E. 
ELECTION, 

to give credit before actual collection, 25, note, 
of bank to discount or collect, 36. 

of drawee to sue bank or owner for money paid by mistake, 193, 
' 194. 

EMPLOYE, 

see "Master and Servant." ' 

ENGLAND, 

rule in, as to liability of initial bank for defaults of correspond- 
ent bank, 149. 

ENTRIES, 

in books of collecting bank not conclusive as to existence of bal- 
ance against depositor, 41. 

EQUITABLE ASSIGNMENT, 

check or draft does not operate as, 76-78. 

EQUITY, 

remedy at law for conversion, 229, note. 

jurisdiction over trusts, 8. 

doctrine as to following trust funds, 232. 



342 INDEX. 

ESTOPPEL, 

of bank to deny relation as collecting medium, 16. 

of bank to deny power to collect commercial paper, 45. 

of initial bank to deny ownership of paper, 211. 

of bank to deny receipt of proceeds, 122, 123, 186. 

of bank by acts of cashier with respect to forged paper, 253. 

bank not estopped by statement of collection teller that raised 

paper was all right, 263. 
of corporation to deny authority of ostensible agent to receive 

payment for company, 202. 

EVIDENCE, 

judicial notice, see "Judicial Notice." 

presumption, see "Presumption." 

burden of proof, see "Burden of Proof." 

parol, see "Parol Evidence." 

receipt from cashier as evidence of acceptance of paper for col- 
lection, 15. 

of instructions not to protest, 116. 

of agreement by collecting bank to notify all prior mdorsers, 121. 

of agency, declarations of alleged agent not admissible, 147. 

of custom, 178. 

not admissible to charge drawee paying forged draft with 
knowledge that bank, ostensibly the owner, was acting as 
agent, 270. 

books of bank as evidence of balance against customer, 200, note. 

of forgery of signature of drawer, 250, note. 

of ratification of negligence of bank, 97, 98, 128, 129. 

admissibility in actions for negligence of bank, 283. 

pleading and proof, variance, 284, 286. 

sufficiency, as to payment in cash rather than certificates of de- 
posit, 85, note. 

declarations of assistant cashier held not sufficient to show mis- 
take by other officer of bank, 197. 

EXECUTION, 

returned nulla bona as evidence of insolvency of maker, 284. 
stay of, until note is assigned to bank, 276, 277. 
on judgment on joint claims of bank and depositor, division of 
proceeds, 207. 

EXECUTORS, 

of deceased indorsee, failure of bank to give notice of dishonor, 
121, note. 



INDEX. 343 

EXPRESS COMPANIES, 

deposit of paper for collection with, is a bailment, 5, note. 

custom as affecting liability of initial collecting company for de- 
faults of connecting line, 178. 

negligence in collecting, 166. 

liability for default of company with connecting line, 152, 153. 

duty to seasonably return dishonored paper, 124, 125. 

holding note for collection without indorsement to itself must 
give indorsee notice of dishonor, 120, note. 

EXTENSION, 

of time of payment, bank no authority, 79. 

given by indorser In ignorance of legal discharge, not a waiver 
of right to discharge, 127. 

EXTINGUISHMENT, 

of check not affected by sending it directly to drawee for col- 
lection, 134, note. 



FEDERAL COURTS, 

rule as to liability of initial bank for defaults of correspondent 

bank, 149. 
rule that collecting bank is not liable as general indorser, 93. 

FIDUCIARY RELATIONS, 

right to follow property left with fiduciary, whether agent, bailee, 

or trustee, 225, 226. 
between collecting bank and customer, 8. 

FOREIGN ATTACHMENT, 

of uncollected paper, 38, note, 39. 

FORGERY, 

what law governs liability of collecting bank paying forged pa- 
per, 248. 
name of maker or drawer forged, 250. 
what constitutes forgery of signature of drawer, 250, note, 
indorsement of payee forged, 254. 

payee not disqualified by interest from testifying in suit by 
drawee against collecting bank, 269, note, 
what constitutes forgery of name of payee, 255, 256. 
diligence in notifying parties to paper, 268. 



344 INDEX. 

FORGERY— Cont'd. 

charging back amount of forged paper, 262. 

liability of collecting bank on its indorsement of forged paper, 
260. 

indorsement by bank on forged check payable to cash, not equiv- 
alent to indorsement by payee, 262. 

ratification and 'Waiver of acts of bank as to forged paper, 271. 

recovery back of payments made on forged paper, 264. 

FORM, 

of indorsement, as affecting title, 29-35. 
of notice of dishonor, 118. 

FORWARDING, 

consideration of agreement to forward and collect, 14. 
whether bank undertakes to "forward" or to "collect," 174. 

FRAUD, 

of collecting bank, liability in general, 95. 

of bank in receiving paper for collection when insolvent, effect 
on title to paper, 21. 

in depositing for collection paper known to be worthless, 29, 63. 

of president of collecting bank, when bank not liable, 50, note. 

of cashier of correspondent, recovery by initial bank, 180. 

of bank in obtaining preference for its own claim, to prejudice of 
owner of paper, 86-90. 

receiving paper for collection with knowledge of insolvency, pro- 
ceeds as trust fund, 227, 228. 

fraudulent transfer of overdue paper, transferee not a bona fide 
holder, 204. 

that note was executed to defraud cfeditors of a third person is 
no defense to suit against bank for proceeds, 205, 206. 

effect on running of limitations against action for negligence, 277. 

measure of damages is full value of paper, 291. 

G. 

GARNISHMENT, 

of uncollected paper, 38, 39. 
wrongful, who may sue, 203. 
of proceeds, 204. 

GENERAL DENIAL, 

matters admissible under, 285. 



INDEX. 345 

GENERAL INDORSEE, 

liability of collecting bank, 92, 93. 

GENUINENESS, 

warranty of general indorser, 93, note. 

GEORGIA, 

rule as to liability of initial bank for defaults of correspondents, 
154. 

GRACE, 

days of abolished in some states, 110. 
checks payable at future time are entitled to, 109. 
paper entitled to, negligence of bank in prematurely protesting, 
108-110. 

GRATUITOUS BAILMENT, 

bailment for collection not gratuitous, 13-15. 

H. 

HANDWRITING, 

drawee charged with knowledge of signature of drawer, 250. 

HIRE, 

delivery of paper for collection is bailment for hire, 4, 5, 13-15. 

HOLDER, 

at time of suit presumed to have been holder at maturity of pa- 
per, 283. 
collecting bank as agent for, 7, 8. 

collecting bank is a holder for purposes of collection, 102, 103, 
' 108. 
bona fide, see "Bona Fide Purchasers." * 

I. 
IDENTIFICATION, 

of drawer's signature, presumption of negligence from loss of 

paper sent to drawee bank for purpose of, 65. 
not negligence to send paper to drawee bank to identify signa- 
ture of drawer, 137. 

IDENTITY, 

proceeds may be followed as trust though their identity is lost 
if they can be traced, 232-234. 



346 INDEX. 

ILLINOIS, 

rule as to liability of initial bank for defaults of correspondents, 
166. 

IMPLIED ACCEPTANCE, 

from unreasonable retention of paper by bank, 119. 

IMPLIED CONTRACT, 

for compensation to bank, 13. 

to take necessary steps for collection, 13. 

of bank to follow instructions, 47, 48. 

of depositor of paper that bank may follow geiieral and lawful 

customs of banks, 17. 
between banks, 140. 
necessity of pleading, 279. 

IMPLIED POWER, 

of bank to make collections, 44-46. 
INDEMNITY, 

liability of correspondent bank to initial bank, 153, 179, 180. 

INDEPENDENT CONTRACTOR, 

status of Initial collecting bank with reference to correspond- 
ent banks, 157. 

INDIANA, 

rule as to liability of initial bank for defaults of correspondents, 
165. 

INDORSEE, 

entitled to notice of dishonor from collecting express company, 

though there was no indorsement to the company, 120, note, 
of sight draft entitled to. notice of nonacceptance, though drawer 

insolvent, 118. 

INDORSEMENT, 

title as affected by form of, 29-35. 
for collection, is restrictive, 29. 
destroys negotiability, 29. 
prevents passage of title to bank, 29, 30. 
prevents correspondent from obtaining lien on proceeds for 

debt of initial bank, 220. 
creates trust in proceeds, 222, 223. 



INDEX. 347 

INDORSEMBlSfT— Cont'd. 

"for collection for account of" does not pass title, 31. 
"for collection on account" does not pass title, 31. 
"for collection and credit" does not pass title, 31. 

effect of rules of bank en passage of title to paper, 27. 
"for collection on account," or "for collection and credit," does 
not pass title, though credit is given in advance of collection, 
26. 
"pay to A, or order, for account of B," does not pass title, 31. 
for "account of" held, with other facts, to pass title, 23. 
"for deposit" passes title, 31, 32, 270. 
for deposit and credit passes title, 22. 

followed by draft against credit, passes title, 22. 
garnishment of proceeds, 204, 205. 
in blank, passes title, 32-34. 

followed by draft against credit given, passes title to bank, 

22. 
to initial bank, title or lien of correspondent, 223. 
right of transferee to sue on paper in his own name, 49. 
trust not enforceable for proceeds of paper taken by bank 
on blank indorsement, 243. 
possession of paper by bank with authority to collect confers 

right to indorse, 46. 
striking out indorsement for collection, 55. 
what indorsers entitled to notice of dishonor, 120, 121. 
second indorser cannot recover for failure of bank to notify first 

indorser, 121. 
by collecting bank, right of bank to notice of dishonor, 120, 121. 
transfer without indorsement authorizes transferee to sue on 

paper in his own name, 50. 
indorsee for collection as real party in interest in suit on the 

paper, 52, 53. 
improper indorsement to bank no defense to action for securing 

its own claim to exclusion of rights of owner of paper, 88. 
parol evidence to explain, 34, 35. 

liability of collecting bank as general indorser, 92, 93. 
to bank, followed by general indorsement of bank, renders bank 

a general indorser, 92. 
warranty of genuineness of prior indorsements, 252, 257, 260. 
negativing right to rely on rules and usages of clearing house 

affecting title to proceeds, 212. 
of forged paper, liability of collecting bank, 260. 



348 INDEX. 

INDORSEMENT— Cont'd. 

of bank on forged check payable to cash, not equivalent to In- 
dorsement by payee, 262. 

of payee forged, liability of collecting bank, 254. 

by payee of forged paper, precludes recevery by payee from 
drawee, 252. 

recovery from prior indorser of payments made X>y mistake on 
forged papef, 266. 

INDORSEES, 

who entitled to notice of dishonor from bank, 120, 121. 
measure of damages for discharge of, 292. 
costs of suits against, as element of damage, 293. 
see, also, "Indorsement." 

INFORMATION, 

forwarding by initial to correspondent bank, 94. 
correspondent liable to initial bank for failure to disclose ma- 
terial facts, 179. 

INJUNCTION, 

against collection, revokes authority of bank, 55. 
INQUIRY, 

for lost paper, duty of collecting bank, 66, 67. 

INSOLVENCY, 

of bank terminates authority to collect, 54. 

of bank before collecting does not divest it of title once vested 

in It, 37. 
of bank before compliance with instructions to apply deposits in 

payment, 189. 
suspicion of insolvency of obligor bank does not justify rescis- 
sion of credit given for paper, 37. 
of draiwer of check on collecting bank, cancellation of prema- 
ture credit, 28. 
of sight draft, bank must give notice of nonacceptance to in- 
dorser, 118. 
and indorsers, presumptions, and burden of proof, 282. 
credit entered after, does not change relation of bank and cus- 
tomer, 185. 
of drawee, no excuse for failure to present for acceptance, 105. 
of obligor, effect of knowledge of fact by holder before deposit 
for collection, 63. 



INDEX. 349 

INSOLVENCY— Cont'd. 

of initial bank before credit given by correspondent, title to pro- 
ceeds, 216. 
lien of correspondent on proceeds of collections, 213-224. 
of correspondent, does not relieve initial bank from liability, 178. 
of bank when paper was received prevents passage of title, 21. 
renders proceeds a trust fund, 227, 228. 
not a conversion, 209. 

knowledge of a suspicion of insolvency of correspondent does 
• not render bank negligent in selecting sucli correspond- 
ent, 133. 
preference for amount of proceeds of collection. 224. 
of collecting bank after remittance by check or draft, proceeds 

as a trust fund, 229. 
tracing and following proceeds into estate of insolvent collecting 

bank, 232. 
filing claim as general creditor does not waive right to prefer- 
ence, 245. 
what portion of assets of bank is impressed with trust for 

amount of proceeds of collections, 245. 
reclaiming from receiver uncollected checks taken when bank 

was known to be insolvent, 242, note, 
showing in mitigation of damages, 295. 

mistake as to solvency of obligor not ground for recovery of pay- 
ment, 194. 
pleading, 280. 
evidence of, 282, 284. 

INSTRUCTIONS, 

bank must follow, 47, 48. 

forwarding by initial bank to correspondent, 94. 

to take particular steps in collecting not a limitation of liability 

to such steps, 61. 
as to surrender or retention of bills of lading accompanying 

drafts, 69, 70. 
as to application of deposits to payment of depositor's paper, 75. 
as to extensions and renewals, 79, 80. 
not to protest, 116. 

for return of dishonored paper, 124, 125. 
allowing paper to be sent directly to drawee bank for collection, 

136, 137. 
fraudulent disregard of, by cashier of correspondent, rights of 

initial bank, 180. 



350 INDEX. 

INSTRUCTIONS— Cont'd. 

as to payment of proceeds, 201. 

with paper indorsed "for collection," negativing title in corre- 
spondent, or a right to a lien, 223. 

performance of, held to justify collecting bank in obtaining pref- 
erence for its own claim against obligor, 89. 

to remit in exchange negatives existence of trust where check is 
sent, and sending bank fails, 230. 

INTENTION, 

as factor in determining question of title to paper, 20, 21. 

INTEREST, 

collection of, 90. 

payment of as factor in determining title to paper, 22, 23. 

as element of damages, 294. 

IOWA, 

rule as to liability of initial bank for defaults of correspondents, 
167. 

IRREGULAR DEPOSIT, 

Louisiana theory of relation between collecting bank and cus- 
tomer, 3, 4. 

ISSUE, 

matters not in issue need not be proved, 284. 

J- 
JOINT LIABILITY, 

correspondent banks not jointly liable to initial bank, 152. 
JUDGMENT, 

in action for negligence, 286. 

obtaining adjudication on claim as general creditor precludes 
enforcement of trust or preference, 245. 

JUDICIAL NOTICE, 

that banks have power to make collections, 45. 
of custom to accept certificates of deposit as casn In payment of 
collection, 85. 
to remit by check or draft, 192. 

JURISDICTION, 

of common law negatives trust relation between collecting bank 
and customer, 8. 



INDEX. 351 

JURY, 

province of, whether bill was taken in payment of debt or for 
collection, 15, note, 
title to paper, 20. 

negligence of collecting bank, 95, 96. 

negligence in failing to seasonably return dishonored pa- 
per, 125. 
measure of damages, 290. 

K. 

KANSAS, 

rule as to liability of initial bank for defaults of correspondents, 
168. 

KENTUCKY, 

rule as to liability of initial bank for defaults of correspondents, 
170, 

KNOWLEDGE. 

of custom not essential to binding effect, 17. 

of material facts essential to ratification or waiver of negligence 

of bank, 98, 126-129. 
of dishonor not equivalent to notice, 118. 
drawee charged with knowledge of signature of drawer, 250. 

L. 
LACHES, 

see "Negligence." 
LADING, BILLS OF, 

see "Bills of Lading." 
LAW MERCHANT, 

source of banker's lien, 39, 40. 

waiver of rules of, may be shown under general denial, 285. 

LETTERS, 

as evidence, 283. 
LI-EN, 

of collecting bank on paper, 39-42. 

not affected by assignment by debtor lor benefit of creditors, 
41, 42. 



352 INDEX. 

LIEN— Cont'd. 

of bank on corporate funds for debt of agent of company, 202, 
note. 

of correspondent for debt of initial bank, 213. 

of bank on proceeds collected after filing by customer of petition 
in bankruptcy, 200, note. 

on proceeds of collections of national bank, by reason of accept- 
ance of its paper, dates from acceptance, 216. 

LIMITATION, 

of authority of collecting bank, in general, 46, 47. 

LIMITATION OF ACTIONS, 
for negligence of bank, 277. 
admissibility of s1)atute of limitations, 284. 

LIMITATION OP LIABILITY, 

for negligence in collecting, 60, 61. 
for negligence of correspondent, 177. 

LOCATIO OPERIS PACIENDI, 

nature of bailment for collection, 4, 5. 

LOST PAPER, 

liability of bank for loss, 64-67. 

presence in bank does not amount to, or excuse, presentment for 
payment, 112. 

LOUISIANA, 

rule as to liability of initial bank for defaults of correspondents, 
173. 

M. 

MAIL, 

loss of paper in, liability of bank, 64-67. 

effect of abandonment of custom of giving notice of dishonor 

by mail, 119, 120. 
collecting bank cannot withdraw from mails its draft given in 
payment, 196. 

MAKER, 

collecting bank not agent of, 7. 

without funds, bank not authorized to pay paper, 10, 11. 

evidence of insolvency, 284. 

name forged, liability of collecting bank, 250. 



INDEX. 353 

MALICE, 

bank not liable for malicious publication of protest by its no- 
tary, 144. 

MANDATE, 

bank as mandatary, 3. 

MARYLAND, 

rule as to liability of initial bank for defaults of correspondents, 
164. 

MASSACHUSETTS, 

rule as to liability of initial bank for defaults of correspond- 
ents, 160. 

MASTER AND SERVANT, 

stipulation limiting liability of master for negligence, void as 

against public policy, 60. 
liability of bank for defaults of notary who is regular employe 
of bank, 143, 144. 

MATURITY, 

time of receiving payment, 78. 

credit entered before, not a payment or collection, 186. 

time of, negligence of collecting bank in determining, 108-110. 

of depositor's debt to bank as affecting lien of bank en his paper 

deposited for collection, 40. 
paper not matured not subject to garnishment or trustee process, 

38, 39. 
transfer after, transferee not a bona fide holder, 204. 

MICHIGAN, 

rule as to liability of initial bank for defaults cf correspond- 
ents. 154. 

MINGLING FUNDS, 

depositor bound by general custom of banks, 17, 18. 

implied agreements permitting, between collecting banks, 140. 

effect on right to follow trust funds, 232. 

MINNESOTA, 

rule as to liability of initial bank for defaults of correspondents, 
156. 

MISSISSIPPI, 

rule as to liability of initial bank for defaults ol correspondents, 
173. 

24 



3S4 INDEX. 

MISSOURI, 

rule as to liability of initial bank for defaults of correspondents, 
170. 

MISTAKE, 

liability of collecting bank, 95. 

certification of altered paper, 271. 
ground for correction of bank account, 26, note, 
payment by, 192-197. 

payment by drawer does not relieve correspondent from lia- 
bility to initial bank, 180. 
bank cannot withdraw from mails its check or' draft given 
in payment, 196, 197. 
recovery of payments, 192-197. 

recovery of payments made on forged or altered paper, 264. 
payment by indorser in ignorance of discharge may be re- 
covered back, 127. 
evidence, 197. 

MITIGATION OF DAMAGES, 

evidence admissible under general denial, 285. 
what may be shown, 295. 

MONEY, 

collecting bank as agent to receive payment, 6, 7. 

the only proper medium of payment of collections, 80-82. 

bank can take money only in payment, 80. 

MONEY HAD AND RECEIVED, 

recovery of money paid under mistake, 194. 

MONTANA, 

rule as to liability of initial bank for default of correspondents, 
157. 

MORTGAGE, 

obtained by bank on property of obligor to prejudice of rights of 

owner of paper, 88. 
bank as trustee for collection may sue to foreclose in its own 
name, 50. 

MUNICIPAL BONDS, 

title does not pass on special deposit for collection, 21. 



INDEX. 355 

N 

NATIONAL BANKS, 

have implied power to collect commercial paper, 45, 46. 
lien en proceeds of collections in hands of insolvent national 
• bank, on account of acceptance of its paper prior to insolvency, 
dates from time of acceptance, 216. 

NEiBRASKA, 

rule as to liability of initial bank for defaults of correspondents, 
169. 

NEGLIGENCE, 

degree of care required of collecting bank, 59, 60. 

to charge parties to paper, 101, 102. 

in selection of agents and correspondents, 132, 133. 
where instructions were ambiguous, 48. 
ground for revocation of bank's authority, 55. 
contractual' limitation of liability. 60-62. 
as to medium of payment, 80. 
as to time and manner of receiving payment, 78. 
taking acceptance not according to tenor of hill, 106, 107. 
premature surrender of bills of lading accompanying draft, 69. 
premature protest of paper entitled to grace, 108-110. 
failure to give notice of dishonor, 117-121. 
enforcement of paper taken in payment, 122, 123. 
failure to seasonably return dishonored paper, 123-125. 
of correspondent bank, liability of initial bank, 147-179. 

limitation of liability for negligence of correspondent, 177. 

waiver, 180. 
of notary, liability of employing bank, 141-146. 
selecting drawee or obligor as subagent or correspondent, 133- 

140. 
of collecting bank securing its own claim to exclusion of rights 

of owner of paper, 86-90. 
of cashier, liability of bank, 62, 63. 
of depositor of paper, when bank not liable, 63, 64. 
giving notice of forgery or alteration, 258. 
question for jury. 95. 
cause of action in general, 274. 
conditions precedent to actions for, 276. 
limitation of action for, 277. 
presumptions and burden of proof in general, 281. 



356 INDEX. 

NEGLIGENCE— Cont'd. 

from loss of paper, 64-66. 

instructions as to presumption from loss of paper, 65. 
compensatory damages, 288. 
nominal damages, 289. 

face value of paper as measure of damages, 290. 
waiver, 97, 98, 126-129, 180. 

NEGOTIABILITY, 

destroyed by indorsement for collection, 29. 

promise to account for proceeds is not negotiable, 201, note. 

NEGOTIABLE INSTRUMENTS LAWS, 

check or draft not an assignment of fund, 77. 

antecedent debt constitutes value, 217. 

collecting bank indorsing generally is a general Indorser, 92. 

rule that indorsee under restrictive indorsement may transfer his 
rights as indorsee, 46, 47. 

rule that restrictive indorsement confers on indorsee right to 

bring any action that indorser could bring, 49. 
. instrument payable at bank is order on bank to pay same for ac- 
count of principal debtor, 73. 

presentment for payment must be made by holder or his agent, 
108. 

days of grace abolished, 110. 

NEW JERSEY, 

rule as to liability of initial bank for defaults of oorrespendent 
banks, 153. 

NEW YORK, 

rule as to liability of initial bank for defaults of correspondent 
banks, 151. 

NOMINAL DAMAGES, 
see "Damages." 

NORTH CAROLINA. 

rule as to liability of initial bank for defaults of correspondents, 
164. 

NORTH DAKOTA, 

rule as to liability of Initial bank for defaults of correspondent 
banks, 157. 



INDEX. 357 

NOTARY PUBLIC, 

bank must use due care in selecting notary, 132, 133. 
liability of collecting bank for defaults of, 141-146. 

NOTES, 

bank cannot take payment in, 82. 

credit on receiving notes in payment is not a payment, 185. 

taking in payment does not make bank a trustee for amount of 

collection, 237, 238. 
charging amount to account of customer before insolvency does 
not create a trust, 239. 

NOTICE, 

judicial notice, see "Judicial Notice." 

of revocation of authority of collecting bank, 56, note. 

indorsement "for collection" is notice that title is in indorser, 

,30, 220. 
of ownership of paper, liability of bank paying In violation of 

notice, 202, 206. 
that delivery of paper indorsed in blank was fof collection, 33. 
duty of bank on which check deposited for collection was drawn, 

to notify depositor of state of drawer's account, 28. 
of loss of paper, duty and liability of collecting bank, 66, 67. 
duty of correspondent bank to notify initial bank of material 

facts, 179. 
when correspondent a bona fide holder, though notified of title 

in owner, 218. 
correspondent bank with notice of title in depositor, not a bona 

fide purchaser from initial bank, 219-223. 
of ownership of proceeds, 201. 
from custom, 270. 
not to protest, 116. 

of dishonor, duties and liabilities of collecting bank, 117-121. 
what indorsers entitled to notice, 120, 121. 
when collecting bank entitled to notice as indorser, 120, 121. 
bank liable for failure to give notice, without prior suit 

against discharged indorsers, 121, 122. 
necessary showing in special verdict, 286. 
of forgery or alteration, 258. 
of facts putting customer on inquiry as to alteration, 262. 

O. 
OFFICERS, 

representation of bank by cashier, 62, 63. 



358 INDEX. 

OFFICERS— Cont'd. 

estoppel of bank by acts of casliier, 16. 

when collecting bank not liable for fraud of president, 50, note. 

bank not liable as trustee for money collected and deposited by 

its president in his own name, 238. 
paying teller not authorized to receive deposit to take up paper 

held for collection, 75. 
when bank not bound by statement of collection teller that raised 

paper was all right, 263. 
liability of bank for defaults of notary who is also an officer of 

the bank, 143, 144. 
notary public acting in official capacity, liability of bank for his 

defaults, 144. 
presumption that some officer was present to receive payment of 

demand note payable at bank, 112. 
knowledge of insolvency of bank when paper was received, ef- 
fect on title to paper, 21. 

OHIO, 

rule as to liability of initial bank for defaults of correspondents, 
153. 

OPINIONS, 

of merchants not competent evidence of custom, 178. 

OPTION, 

of bank to discount or collect, 36. 

of drawee to sue bank or owner for money paid by mistake, 193, 
194. 

ORDER, 

to "deliver" proceeds equivalent to order to "pay," 201. 

OVERDRAFTS, 

ground for cancellation of credit given in advance of collection, 

28. 
enforcing trust in debt of drawer as against other creditors of 

drawee bank, 231. 

P. 
PAROL EVIDENCE, 

explaining indorsement, 34, 35. 

of contents of placard posted in bank, 28i. 



INDEX. 359 

PARTIES, 

authority of bank to sue on paper in its own name, 48-53. 

real party in Interest in suit on paper left in bank for collec- 
tion, 52, 53. 

maker discharged by payment cannot sue bank for misappropria- 
tion of proceeds, 200, note. 

to action against correspondent bank for proceeds, 209. 

to action against bank for not applying deposits to payment of 
depositor's paper, 75. 

PARTNERSHIP, 

banking partnership liable for wrongful delivery of bills of lad- 
ing by one partner, 70, note. 

lien of collecting bank on firm paper for balance due on firm ac- 
count, 39, note. 

survivor of banking firm has no authority to credit checks re- 
ceived after dissolution, 186. 

right to proceeds of paper belonging to firm or partner, 206. 

PART PAYMENT, 

collecting bank not authorized to receive, 79. 

ratification of acts of bank, 128. 

bank cannot apply deposits of obligor to part payment of paper, 

'74. 

PAYEE, 

collecting bank as agent of, 7, 8. 

correspondent has lien as against owner for debt of initial bank, 

which had been made the payee of the paper, 218. 
indorsing forged paper cannot recover from drawee, 252. 
indorsement by bank on forged check payable to cash, not 

equivalent to indorsement by payee, 262. 
indorsement of payee forged, liability of collecting bank, 254. 
indorsing forged or raised paper to paying bank must repay, 264. 
not disqualified by interest from testifying in suit by drawee 

against collecting bank for money paid on forged indorsement 

of payee's name, 269, note, 
ratification of forged indorsement, 255. 

PAYING TELLER, 

not authorized to receive deposit to take up paper held for col- 
lection, 75. 



360 INDEX. 

PAYMENT, 

relation when paper is payable at bank, 9-11. 

collecting bank is agent to receive payment, 6, 7. 

whether bill was taken in payment of debt or for collection as 
question for jury, 15, note. 

what constitutes, in general, 182-191. 

where creditor is ignorant of debt, 267. 

to payee of order signed by owner, is payment to owner, 201, 202. 

effect of credit in advance of collection, 184. 

not effected by sending check to drawee, 134, note. 

receipt merely prima facie evidence of, 193. 

by draft not complete until draft is paid, 192. 

to correspondent as payment to initial bank, 191. 

to or through clearing house, 212. 

to ostensible agent of corporation, 202. 

time and manner of receiving, 78-80. 

extensions and renewals, 79. 

must be in money, 80. 

authority of bank to take checks, 81-84. 
on itself, 86. 

to collecting bank by its own certificates of deposit, 85. 

sufficiency of evidence as to payment in money rather than in 
certificates of deposit, 85, note. 

right of collecting bank to retain bills of lading until payment 
of drafts, 67-71. 

place of, negligence of holder in failing to properly inform col- 
lecting bank, 63. 

authority of bank to receive payment after dishonor, 54. 

&.pplication of deposits to payment of depositor's paper held for 
collection, 71-76. 

presumption that paper would have been paid but for fraud cf 
• bank in first securing its own claim against obligor, 88. 

draft not stating time of, is payable on demand, 104. 

not a waiver of negligence of bank, 129. 

msiker discharged by, cannot maintain action for misappropria- 
tion of proceeds, 200, note. 

enforcement of paper taken in payment, 122, 123. 

by maker to indorsers, no defense to action against bank for 
failure to protest, 116, 117. 

taking note or check does not make bank a trustee for amount 
of collection, 238. 

presentment for, 107-115. 



INDEX. 361 

PAYMENT— Cont'd. 

not necessary where paper is payable at bank, 111, 112. 
premature, 109. 

waiver of negligence of bank, 127, 128. 
by collecting bank of paper on which name of maker or drawer 
was forged, 250. 
on which indorsement of payee was forged, 234. 
by mistake and recovery of payments, 192-197. 

recovery back of payments made on forged or altered p&,veT, 

264. 
action by collecting bank against drawers to recover back, 
defense that bank sent paper directly to drawee, 134j note, 
mistaken payment by drawer does not relieve correspondent 

from liability to initial bank, 180. 
indorsar msy recover back, 127. 
payment by indorser in ignorance of legal discharge from 

liabilityy may be recovered back, 126, 127. 
promise to pay made by indorser in ignorance of legal dis- 
charge not binding, 126. 
voluntary payment cannot be recovered back, 197. 
application of payments, 265, note. 

PENNSYLVANIA, 

rule as to liability of initial bank for defaults of correspondents, 

162. 

PETITION, 

summary application to establish trust in proceeds in hands of 
receiver, 233, note. 

PLACARD, 

parol evidence of contents of placard posted In bank, 283. 

PLACE, 

of performance of undertaking determines what law governs re- 
lation between bank and customer, 11-13. 
of payment, relation when paper is payable at bank, 9-11. 

PLEADING, 

in actions for negligence of bank, 278. 

allegation of bailment for collection not inconsistent with alle- 
gation that bank obtained paper through fraudulent conceal- 
ment of its insolvency, 227, 228. 



362 INDEX. 

PLEADING— Cont'd. 

complaint held to negative plaintiff's right to sue on the paper 

In his own name, 49, note, 
answer, 280. 
variance, 284. 

PLEDGE, 

bank may pledge paper indorsed in blank, 33. 

of paper to bank, interest of pledgor is subject to attachment 

before collection, 39. 
lien of bank as pledgee of paper, 41. 
deposit for collection by pledgee, pledgor proper party to sue 

bank for negligence, 275, note. 

POSSESSION, 

collecting bank entitled to possession as against all but owner, 
37, 38. 

collecting bank may sue for, 51, 52. 

of paper indorsed in blank is prima facie evidence of owner- 
ship, 33. 

of note indorsed in blank, holder may sue bank for negligence, 
275. 

by bank of dishonored note, right of bank to sue thereon in it: 
own name, 50. 

POWER, 

of bank to make collections, 44-46. 

PREFERENCE, 

fraud of bank in obtaining preference for its own claim to 

prejudice of owner of paper, 86-90. 
lien of bank accepting draft of insolvent national bank dates 

from time of acceptance, 216. 
refual to pay check of customer does not create preference, 231 
of claim for proceeds of collection, 224-246. 
see, also, "Tl-uBt." 

PRESENTMENT, 

for acceptance, duties and liabilities of collecting bank, 103-107. 

burden of proving, 104. 

not necessary in case of paper payable on demand, 104. 

excuses for failure to present, 105, 106. 

measure of damages for failure to present, 296. 
for payment, 107-115. 



INDEX. 363 

PRESENTMENT— Cont'd. 

not necessary where paper is payable at bank, 111, 112. 

effect of custom, 114, 115. 

nominal damages for f&ilure to present, 289. 

PRESUMPTION, 

as to title to paper deposited for collection, 23-25. 

of knowledge of general and uniform customs of banks, 17. 

of custom to take checks in payment, 83. 
of negligence, in general, 281. 

from loss of the paper, 64, 66. 

from sending paper directly to drawee for collection, 133-140. 
that regularly commissioned notary is a proper person to select 

for making protest, 143. 
that indorsers will take advantage of their legal discharge, 121, 

122. 
that demand note payable at bank was in the bank, 112. 
that deposit to take up accepted bill was .made by acceptor, 75. 
that paper would have been paid but for fraud of bank in first 

securing its own claim against obligor, 88. 
that cash on hand at time cf failure of collecting bank is pro- 
ceeds of collection, 245. 

PRINCIPAL AND AGENT, 

collecting bank as agent, 6-8. 

relation not provable by declarations of alleged agent, 147. 
agency of collecting bank when paper is payable there, 9-11. 
bank's agency undisclosed, liability for money received on forged 

paper, 269. 
pleading the relation, 278. 

termination of bank's authority to collect, 53-56. 
revocation of authority of collecting bank, 54, 55. 
agent for collection not real party in interest in suit on paper, 

53. 
custom and usage as abrogating instructions to agent, 48, note, 
collecting or investing agents not chargeable in garnishment 

or trustee process, 38, note, 
agent liable for securing his own claim to prejudice of principal, 

86-90. 
indorsement by collecting agent, warranty of genuineness of 

prior indorsements, 260, 261. 
agent cannot delegate powers, 174, 175. 
liability of correspondent bank to initial bank, 179. 



364 INDEX. 

PRINCIPAL AND AGENT— Cont'd. 

rule that agent is liable for acts of subagents, 175. 

employment by bank of agents other than notaries and other 

banks, 146, 147. 
notary as agent of bank or owner, 141-146. 
care required in selection of agents to assist in collection, 132- 

140. 
drawee or obligor not a suitable subagent or correspondent, 

133-140. 
payment of corporate paper to ostensible agent of company, 202. 
recovery of money paid by mistake to agent who has not turned 

it over to principal, 195. 
bank liable for proceeds when collected by its agents, 201. 

PRIORITY, 

in distribution of assets of insolvent collecting bank, 224-246. 

PRIVITY, 

between owner and notary employed by collecting bank, 142-146. 
between payee and bank collecting paper on forged indorsement 
of his name, 255. 

PROCEEDS, 

how remitted, 191. 

estoppel of bank to deny receipt of, 122, 123. 

authorization to apply proceeds on debt to bank does not pass 

title, 20. 
depositor of paper bound by custom of mingling proceeds with 

funds of bank, 18, 19. 
of paper originally indorsed in blank to initial bank, 223. 
title as affected by rules and usages of clearing houses, 212. 
who entitled in general, 201-203. 
rights of creditors of owner of paper, 204. 
of paper belonging to firm or partner, 206. 
of judgment on joint claims of bank and customer, 207. 
liability of correspondent to owner, 207. 

to initial bank, 209. 
promise to account for is not negotiable, 201, note, 
order to "deliver" equivalent to order to "pay," 201. 
interest on, 294, 295. 
action for, held to be action for conversion within California 

statute of limitations, 278, note, 
lien of correspondent for debt of initial bank, 213. 



INDEX. 365 

PROCEEDS— Cont'd. 

enforcing preference or establishing trust, 224-246. 

conversion as establlslilng trust, 227-229. 

tracing and following into estate of insolvent collecting b&mk, 

232-246. 
of paper indorsed for collection form a trust, 222, 223. 

PROFITS, 

as sufficient consideration for undertaking to collect, 14. 

PROMISSORY NOTE, 
see "Notes." 

PROPERTY, 

right to follow trust funds is a right of property, 228. 

PROTEST, 

duties and liabilities of collecting bank, 115-117. 

premature, before expiration of days of grace, 108-110. 

costs of, when failure to deposit in advance will relieve bank 
from liability for negligence, 63, 64. 

damages on protest not recoverable by bank as compensation for 
collecting, 15. 

employment of notary public, bank must use due care in select- 
ing notary, 132, 133. 

presumption that regularly "commissioned notary is a proper 
person to make, 143. 

return of dishonored paper, 123-125. 

bank liable for failure to protest, without prior suit ag&inst dis- 
charged indorsers, 121, 122. 

PUBLIC POLICY, 

customs of banks contrary to, not binding, 18. 

validity of stipulation by bank against liability for its own neg- 
ligence, 60. 

custom of sending paper directly to drawee for collection is 
against public policy, 138, 139. 

PURCHASER, 

bank not a purchaser of paper deposited for collection, 19-21. 
collecting bank not aj bona fide purchaser, 30. 
bona fide, rights to proceeds of paper, 203. 



366 INDEX. 

Q- . 

QUESTION OP FACT, 

whether title passes to bank in particular case, 20. 
negligence of collecting bank, 95-97. 

in not seasonably returning dishonored paper, 125. 
what Is reasonable time for presentment of check, 113. 
right to recover face value of paper, 290. 

R. 
RATIFICATION, 

of negligence of collecting bank, 97, 98, 126-129. 

of taking Confederate money in payment, 81, note. 

of remittance by draft, negatives right to preference or trust on 

failure of remitting bank, 230. 
of collection of forged paper, 271. 
of forged indorsement, 255. 

by payee of payment by maker of check with indorsement of 
payee forged, 257, 258. 

REAL PARTY IN INTEREST, 

right of collecting bank to sue on paper in its own name, 52, 53. 
in suit against correspondent for failure to turn over proceeds, 
209. 

REASONABLE CARE. 

degree of care required of collecting bank, 59, 102. 
in selection cf agents and correspondents, 132-140. 

of notary relieves bank in some jurisdictions, 142, 143. 
compliance with custom as evidence of, 18. 

REBUTTAL, 

of presumption of negligence from loss of paper, 66. 

REJCEIPT, 

for paper, evidence of agreement to collect, 15. 
merely prima facie evidence of payment, 193. 

RECEIVER, 

enforcing trust for proceeds collected by, 241. 
reclaiming from receiver uncollected checks, taken when bank 
was known to be insolvent, 242, note. 



INDEX. 367 

RELATION, 

between collecting bank and customer, 2. 

when collecting bank becomes debtor for amount of paper, 182. 

when paper is payable at bank, 9-11. 

pleading the relation between collecting bank and customer, 278. 

RELEASE, 

see "Discharge." 

REMEDY AT LAW, 

for conversion, excludes remedy in equity on theory of trust, 229, 
note. 

REMITTANCE, 

by bank, how made, 191. 

by draft or check, when trust arises on failure of drawer or 
drawee bank, 229. 

RENEWALS, 

authority of bank, 79. 

acceptance of, as waiver of negligence of bank, 128, 129. 

RENUNCIATION, 

by bank .of authority to collect, 55, 56. 

REPUTATION, 

as evidence of insolvency, 284. 

RESCISSION, 

of credit given in advance of collection, 25-29. 

for forged or altered paper, 262. 
of contract to pay excess over true amount of raised draft, 268. 

draft of collecting bank given in payment, 196, 197. 
of sale, effect on liability of bank collecting draft, for default of 
correspondent, 172. 

RES JUDICATA, 

judgment on general claim for proceeds bars enforcement of 
trust or preference, 245, 246. 

RESTRICTIVE INDORSEMENT, 
see "Indorsement." 

RETURN, 

of dishonored paper, 123-125. 



368 INDEX. 

RETURN— Cont'd. 

renunciation of authority to collect, 56. 
waiver of negligence, 128. 
of paper, not a condition precedent to suit by initial bank 

against correspondent, 180. 
wrongful return of draft sent in payment, 122, 123. 

REVOCATION, 

of authority of collecting bank, 54, 35. 

REWARD, 

delivery for collection a biiilment for reward, 4, 5, 13-15. 
consideration for undertaking to collect, 13-15. 

RULES, 

of bank, effect on passage of title to paper, 27. 

of bark that it will act only as collecting medium, do not pre- 
vent discounting, 36. 

requiring deposit of protest fees in advance, noncompliance as 
relieving bank, 63, 64. 

of clearing houses, 17, note, 212. 



SALE, 

bank not a purchaser of paper deposited for collection, 19-21. 
collecting bank not a bona fide purchaser, 30. 
bank has no implied authority to sell paper delivered for collec- 
tion, 47. 
bank in possession of note indorsed in blank may sell it, 33. 
surrender by collecting bank of bills of lading, 67-71. 

SATISFACTION, 
see "Payment." 

SCOPE, 

of authority of collecting bank, in general, 46, 47. 

SECOND INDORSBR, 

cannot sue bank for failure to notify prior indorser, 121. 

SECURITY, 

taken by collecting bank on property of obligor to prejudice of 

rights of owner of paper, 86-90. 
taking security against forgery ratifies it, 272, note. 



INDEX. 369 

SET-OFF, 

of dept to bank against paper deposited by debtor for collection, 

39-42. 
by correspondent of debt due from initial bank, 213. 

SETTLEMENT, 

between banks by mutual credits and debits, 187, 188. 
of claim against forger, ratification of collection on forged in- 
dorsement, 272, note. 

SIGHT DRAFTS, 

presentment for acceptance, 104, 105. 

indorsee entitled to notice of nonaoceptance tliough drawer in- 
solvent, 118. 
bank must retain bills of lading until payment of, 69. 

SIGNATURE, 

of drawer, drawee charged with knowledge of handwriting, 250. 

SILENCE, 

not a ratifleation of forgery, 272, note. 

SOLVENCY, 

of drawers or indorsers, presumptions and burden of proof, 282. 
pleading, 280. 

SOUTH DAKOTA, 

rule as to liability of initial bank for defaults of correspondents, 
158. 

SPECIAL DEPOSIT, 

for collection, title does not pass, 21. 

bank not liable for failing to protest a note left in private 
envelope of depositor, 117. 

SPECIAL INSTRUCTIONS, 
see "Instructions." 

STATUTES, 

admissibility to show bar of claim on note by limitations, 284. 

STOPPAGE IN TRANSIT, 

application of doctrine denied where collecting bank wrongfully 
returned draft given in payment, 123. 



370 INDEX. 

SUCCESSIVE INDORSEMENTS, 
see "Indorsement." 

SUCCESSIVE OBLIGORS, 

time for notifying of dishonor, 120, note. 

SUMMARY APPLICATION, 

to enforce trust in proceeds in hands of receiver of bank, 233, 
note. 

SUNDAY, 

liability for mistake in time of protesting note payable on, 109, 

110. 
time of presentment of paper payable on, effect of custom, 114. 

SURPLUSAGE, 

allegations of matters implied by law, 284. 

T. 

TELEPHONE, 

presentment for acceptance by, burden of proving, 104. 

TENDER, 

of paper not a condition precedent to action against bank re- 
ceiving payment by mistake, 268, 269. 
to action against bank for negligence, 276. 

TENNESSEE, 

rule as to liability of Initial bank for defaults of correspondents, 
171. 

TEXAS, 

rule as to liability of initial bank for defaults of correspondents, 
159, 

TIME, 

of maturity, negligence of collecting bank in determining, 108- 

110. 
for giving notice of dishonor, 117-121. 
of receiving payment, 78-80. 
for notifying successive obligors, 120, note. 

TITLE, 

as general rule remains in depositor of paper, 19-21. 



INDEX. 371 

TITLE— Cont'd. 

does not pass unless bank has become absolutely liable for 
amount of the paper, 20. 
If bank was Insolvent when paper was received, 21. 

passes to bank if paper received and treated as cash, 21-23. 

effect of entry of credit and drafts against credit, 22, 23. 

payment of interest as factor in determining title, 22, 23. 

effect of credit in advance of collection, 25-29. 

of bank divested on dishonor of paper for which advance credit 
was given, 27. 

effect of form of indorsement, 29-35. 

Indorsement "for collection" prevents passage of title, 29. 

passes under blank indorsement, 32-34. 

passes where bank discounts paper, 35, 36. 

option of bank to discount or collect, 36. 

revesting in depositor after passage to bank, 37. 

after title passes to bank, owner cannot revoke authority of 
bank,, 55. 

collecting bank has title only so far as necessary to effect col- 
lection, 31. 

as between initial and correspondent banks in general, 210. 

bank's agency undisclosed, liability for money received on forged 
or altered paper, 269. 

warranty by general indorsement, 93, note. 

parol evidence varying or explaining Indorsement, 34, 35. 

trust not enforceable for proceeds of paper if title had pass«d 
to bank, 243. 

presumptions, 23-25. 

TORTS, 

wrongful sale by bank, bona fide holder entitled to proceeds of 

paper, 203. 
wrongful garnishment, who may sue, 203. 
bank not liable- for malicious publication of protest by notary, 

144. 

TRANSFER, 

for collection without indorsement does not pass title, 20. 

of paper without indorsement, transferee may sue on the paper 

in his own name, 50. 
bank has no implied authority to sell paper delivered for collec- 
tion, 47, 



372 INDEX. 

TRANSMISSION, 

of instructions and information to correspondent bank, 94. 
rule that initial bank need only transmit to suitable correspond- 
ent, 160-174. 

TRIAL, 

objection that correspondent banks are not jointly liable to ini- 
tial bank may be taken at the trial, 152, note. 

TROVER, 

■see "Conversion." 
TRUST, 

relation between collecting bank and customer is not a trust, 

8, 9. 
proceeds as a trust fund, 224-246. 

in proceeds of paper originally indorsed for collection, 222, 223. 
not created by refusal to pay customer's check, 231. 
where remittance was made by check or draft, and drawer or 

drawee bank failed, 229. 
in proceeds disposed of before insolvency, 239. 
charging amount of paper to account of customer before insol- 
vency, 239. 
does not arise where proceeds never came into possession of 

bank, 237-239. 
in proceeds used to settle balance at clearing house, 241. 
in proceeds collected by assignee or receiver of bank, 241. 
limited to assets realized at time of failure of bank, 245. 
what portion of assets is impressed with trust for proceeds of 

collection, 245. 
right to follow trust funds is a right of property, 228. 

right exists as against any fiduciary, whether agent, bailee 
or trustee, 225, 226. 
tracing and following proceeds into insolvent estate of collecting 

bank, 232-246. 
when trustee chargeable with interest, 295. 
burden of procf to establish, 226, 227. 
establishment on summary application, rather than by suit in 

equity, 233, note, 
waiver of, 245. 

TRUST COMPANIES, 

collecting bank liable for taking uncertified check of, in lieu of 
payment, 84. 



INDEX. 373 

TRUSTEE PROCESS, 

paper in bank for collection not subject to, 38, 39. 
right to proceeds of collection, 204, 205. 

u. 

UNDERTAKING, 

Implied from delivery and receipt of paper for collection, fi 

UNDISCLOSED AGENCY. 

of bank renders it lia;ble for money received on forged paper, 

269. 
custom not to discloso agency is not notice to drawee paying 

bank on forged indorsement of payee's name, 270. 

UNLIQUIDATED CLAIMS, 

do not give bank lien or right of set-ofC, 40. 

USAGES, 

see "Custom." 

V. 

VALUE, 

consideration for undertaking to collect, 13-15. 

VARIANCE, 

pleading and proof, 284. 

VERDICT, 

in action for negligence, 286 

VOLUNTARY PAYMENT, 

cannot be recovered back, 197. 

W. 

WAIVER, 

by bank of rule that it will act only as collecting medium, 36. 
of irregularity of taking draft of other bank in payment, 81, 82. 
bank does net waive lien on paper deposited for collection by 
accepting general assignment of depositor for bemeflt of credit- 
ors, 42. 
of negligence of collecting bank, 97, 98, 126-129. 

as to forged paper, 271. 
of preference or trust, 245. 



374 INDEX. 

WARRANTY, 

by general indorsement, 93, note. 

certification not a warranty of genuineness of body of Instru- 
ment, 271. 
WISCONSIN, 

rule as to liability of initial bank for defaults of correspondents, 
167. 

WITHDRAWAL, 

from mails, of draft or check given by bank in payment of col- 
lection, 122, 123, 196. 
of paper from bank not a waiver of prior negligence, 128. 
of deposit made to take up paper, 190. 

WITNESS, 

payee not disqualiiied by interest from testifying in suit by 
drawee against collecting bank for money paid on forged in- 
dorsememt of payee's name, 269, note. 

WRONGFUL GARNISHMENT, 
see "Garnishment."